Despite its pullback Friday, the S&P 500 continues marching to new all-time highs and is just a stone’s throw away from the psychologically significant 2,000 level. 

#-ad_banner-#In this positive market environment, it is not difficult to find stocks that have moved higher. Finding the real winners, however, involves spotting stocks that have outperformed the strong market and have clear fundamental reasons for continuing to do so.

That leads me to The Walt Disney Co. (NYSE: DIS). This blue-chip stock has significantly outperformed the S&P 500 over the past three years. (Indeed, my colleague Marshall Hargrave thinks the company could do the same over the next century .)

While the broader market bottomed in early 2009, it wasn’t until October 2011 when the index began its current almost straight-line advance. From its October 2011 lows near 1,075, the S&P 500 is up 85%. DIS has soared more than 200% during that time. As long as the market keeps rising, DIS should at least keep pace.

There are several fundamental reasons why I think DIS could continue to outperform the index.

The company operates in five segments, with consumer products representing the fastest growing one. This unit makes money by licensing popular characters like Mickey Mouse and Thor, publishing best-selling books and apps, and hawking merchandise in stores. Between 2009 and 2013, revenue in this segment increased 46%, to $3.5 billion. With analysts projecting higher margins for licensing and royalties, solid growth is expected.

Disney is perhaps best known for its parks and resorts segment, which includes theme park admission sales, hotel room bookings, vacation rentals and cruise packages. Since 2009, this segment’s revenue has grown 32%, to $14.1 billion. 

The recently introduced MagicBands should be a revenue booster. MagicBands are credit card-linked wearable wrist straps that allow guests to easily swipe purchases — and spend more money. In the first quarter, guest spending per capita rose 8% from the year-earlier period, in part due to the beta testing of MagicBands. 

Disney’s media networks segment, which includes broadcast TV, cable TV and radio network operations, saw revenue increase 26%, to $20.4 billion, between 2009 and 2013. 

It holds a primary stake in popular streaming site Hulu. And future growth should come from the recently announced partnership with Netflix (Nasdaq: NFLX). The two companies just signed a multi-year licensing deal allowing Netflix to stream Disney’s live-action and animated films in Canada. 

Rounding out the company’s segments are the studio entertainment and interactive divisions. The studio entertainment segment produces motion pictures, videos, music and stage plays. The bulk of money comes from film distribution, but revenue has been flat, around $6 billion, in the past five years. The interactive segment, Disney’s smallest division, which develops games and interactive content, is growing but has yet to turn a profit.  

With strong revenue growth in at least three segments, the stock should continue to power ahead as rising revenues translate into growing earnings. 

Since the October 2011 low near $28, the stock has been in a major uptrend. Shares nearly doubled in less than a year, rising to a September 2012 high above $53, before pulling back.

DIS hit a low around $46 in November of that year, but by May 2013, shares had risen nearly 50% to a peak just under $68. The stock digested this advance by moving sideways and holding key support near $60. 

In November, shares again broke resistance, climbing to a high above $83 in March. That level then was established as resistance, with DIS unsuccessfully challenging it several times between February and May.

In May, the stock managed to push past this level, bullishly breaking out of a small ascending triangle . The triangle was formed by the intersection of the major uptrend line and $83.65 resistance, which now marks important support.

Since breaking out of the triangle, shares hit an all-time high at $87.63 on July 16, and are currently trading slightly below this level.

Analysts following the stock project it could reach a target as high as $100. To minimize downside risk, I suggest taking a position once the stock breaks $87.63 resistance.

For the upcoming third quarter, scheduled to be reported Aug. 5, analysts project revenue will increase 5% year over year to $12.2 billion. Earnings are expected to jump 14%, to $1.17 per share.

For the full year, revenue is estimated to rise 8%, to $48.5 billion. And 2014 earnings per share are expected to increase 24%, to $4.20. 

Management has said it will consider raising dividends or share buybacks. It currently pays a dividend of $0.86 for a 1% yield.

Action to Take –>

— Buy DIS on a break above $87.63
— Set stop-loss at $83.59, slightly below current support
— Set price target at $99.95 for a potential 14% gain by late 2014

This article was originally published at ProfitableTrading.com: 
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