It is clear to Jim Cramer that there is a sector-wide decline in media stocks, prompted on Wednesday by Disney's admission of a loss in cable subscribers which sent investors into a state of panic. Could this be the end of the world for media stocks?
"No, but it's certainly the end of their high valuations," the "Mad Money" host said.
In Cramer's perspective, Disney is different from all of the other media companies. Programming at all of the other cable TV companies contains content that can be streamed, which means their channel can be dropped from a cable subscriber's bundle.
You can watch anything on Viacom at a later date, thus there is no immediacy, which is why the stock has been hit the hardest. However, users cannot stream ESPN, and sports have no shelf-life—which are the bread and butter of Disney's cable offering.
So, if Disney is different from the rest of the pack, why is it still in meltdown mode?
It all boiled down to the mechanics of the stock market for Cramer. Stocks that have a gigantic decline, like Disney, tend to get hammered on the second day, too. Meaning, big institutions that were selling massive quantities of the stock and didn't finish cleaning house on the first day.
And while it might seem absurd to an investor who owns a few hundred shares of Disney, big institutions often need help trying to find a buyer for its stock. The positions are so massive that the brokers who were desperately looking for buyers on Wednesday couldn't find enough to take out the sellers.
"Barring a catastrophe in the market, I think the sellers will be done tomorrow and Disney's huge buyback will mop up what's left," Cramer said.
It is clear to Cramer that institutions continue to sell Disney at such low prices because they no longer believe that it is a growth stock. They simply want it out of their portfolios, at any price.
That is a dumb move, in Cramer's opinion. However, he understands why they are selling the stock. Many investors think that the entire media group is not worth as much as it used to be because they have less growth than most portfolio managers thought.
There is no denying the fact that if Disney cannot grow its subscribers it will have to either cut prices or diversify away from cable.
"The issue I have with the sellers is that it's not like Disney's CEO Bob Iger doesn't know this," Cramer said.
Iger has spent a huge amount of time and money trying to build up the movie studios and theme parks. This is evident with "Star Wars" on the horizon and Shanghai Disney's 2016 business. The company is in much better shape than Discovery, Twenty-First Century Fox, Viacom or Time Warner that all depend more on subscriber growth.
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Ultimately, once the Disney smoke clears, Cramer expects that the company will be in there buying back stock, and you should be in there with them.
Looking at Disney from a short-term perspective is all wrong. Cramer said to instead evaluate it as a long-term company with fantastic franchises, which are all being ignored because of one line item.
Cramer is willing to bet that this time next year, Disney will succeed in diversifying away from cable faster than any of the other media companies. When it comes to Disney stock, patience is always rewarded.
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