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Here's My Top Stock to Buy In 2019

Even though original content and streaming TV -- two areas Walt Disney (NYSE: DIS) is well positioned to benefit from over the long haul -- are both getting much attention recently, the company's stock has seemed to get the cold shoulder in recent years. Its shares have essentially gone nowhere since the middle of 2015.

2019, however, could be the year this changes. The company's recently launched ESPN-branded streaming service (ESPN+) is beginning to gain some traction, and the media giant plans to debut a Disney-branded streaming service later this year. Combine these new services with the company's strong studio segment and parks and resorts business, and Disney has some significant tailwinds. Topping it all off, its stock has a very conservative valuation.

These factors make Disney a top stock for investors to consider in 2019.

Here's a closer look:

Disney's new ESPN+ streaming service. Image source: ESPN.

New streaming services: little to lose, much to gain

What's great about Walt Disney's ambitious plans to further improve its recently launched ESPN+ streaming service and bring to market its Disney-branded streaming service is that the company doesn't have to build out these products from scratch. It already has a thriving studio segment, and ESPN commands market-leading viewership for live sports. Disney, therefore, is simply trying to further its content's reach with these new services. Investors can think of these services as the addition of a new distribution channel -- one that can expand Disney's audience significantly.

Sure, the company is producing some new and exclusive content for both of these services that will require meaningful up-front investment. But Disney already has a successful production studio and expertise in live sports content. Vouching for the company's content prowess is $24.5 billion in media networks revenue and $10 billion in studio entertainment revenue in fiscal 2018. Yes, some of its media networks' content is licensed; but the bulk of this segment's revenue comes from ESPN, where Disney boasts a fine-tuned content-producing machine.

Furthermore, though ESPN+ is primarily made up of content incremental to its traditional ESPN network, the new Disney-branded service is going to include access to the company's robust library of Marvel, Pixar, Star Wars, Disney, and National Geographic content, giving the service top-notch media from day one.

Two thriving business segments

While Disney management is adamant that it's time to aggressively pursue a model of direct-to-consumer content, this doesn't mean its existing business is hurting. On the contrary, Disney's revenue and adjusted earnings per share were up 8% and 24% year over year, respectively, in fiscal 2018.

Chris Hemsworth as Thor in Thor: Ragnarok. Image source: Walt Disney.

And two of Disney's business segments saw their revenue and operating income jump sharply in fiscal 2018. Parks and resorts revenue and operating income increased 10% and 18%, respectively, during the year. Meanwhile, studio entertainment revenue and operating income soared 19% and 27%, respectively. Because these two segments combine to represent 47% of Disney's total operating income, their momentum is notable.

A conservative valuation

No matter how you slice and dice it, Disney stock looks cheap. Its P/E is only 13, its price-to-free-cash-flow ratio is just 8.9, and the company trades at 2.8 times sales. When you combine this conservative valuation with strong business momentum and potential for more growth through direct-to-consumer distribution, Disney stock looks like a great buy for investors willing to hold it for the long haul.

Be patient

To be clear, it's unlikely that Disney's new streaming services will significantly help the company's consolidated results in 2019. Indeed, there may be a period in which costs increase faster than revenue as Disney builds out its streaming services. But investors should view an increase in expenses related to these services as worthy investments. Connected TV appears to be an unstoppable force. While it is creating challenges, it is also raising massive opportunities as media companies get access to more targeted advertising and easily scaled distribution.

As Disney continues to add content to ESPN+ and finally releases its long-awaited Disney-branded streaming service later this year, the Street may begin to appreciate the media giant's early efforts to overhaul its content distribution and adapt to an evolving landscape.

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Daniel Sparks owns shares of Walt Disney. The Motley Fool owns shares of and recommends Walt Disney. The Motley Fool has a disclosure policy.

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