Cramer is buying more Disney on the dip — here's why

Published Mon, May 9 20228:58 AM EDTUpdated Wed, May 11 202212:06 PM EDT

We're buying 50 shares of Disney (DIS) at roughly $108.40 each. Following Monday's trade, the portfolio will own 1,075 shares of Disney, increasing its weighting in the portfolio to 3.9% from 3.72%. Markets are set to open sharply lower Monday, in a continuation of the volatility experienced last week. However, the S & P Oscillator is entering the new week not as oversold as we what would prefer. Last Friday may have been a down day, but the S & P Oscillator went the other way and finished the day at minus 4.56% from minus 5.36% on Thursday. Remember, an Oscillator value reaching minus 4% means the market is technically said to be oversold. As we have explained before , the S & P Oscillator is an indicator that helps understand when the market has either become overbought and potentially due for a pullback, or oversold and positioned for a rally. What the Oscillator does best is call turns in the market. Of course, the market can still go lower and the Oscillator can get more oversold from here. It's never perfect and the Oscillator still has a long way to go before it gets to the oversold levels that preceded strong bounces a few times this year. However, an oversold market usually acts as a good wakeup call about becoming more opportunistic about stocks. As we have said previously, we recommend the Investing Club take advantage of the oversold condition by gradually putting some money to work in high quality companies that as Cramer says, "Make stuff and do things at a profit", offer generous dividends and buybacks, and trade at reasonable valuations. We cannot stress the importance of this type of defensive positioning enough. Our approach to Monday's selloff is to pick one stock to buy and then patiently wait because it could be a long day and we do not want to do too much buying too early. Why buy at all? Again, we are oversold and also the setup for buying is a lot more favorable with the market already down more than 1.5%. If the market were up 1.5% premarket, we would steer clear from buying because paying up for anything is how you get burned in this treacherous market. The stock we are picking to buy Monday morning is Disney. Although the balance sheet still needs some work before dividends and buybacks return, we like adding here because this is an iconic, profitable company trading back to its late 2018 levels, excluding the Covid pandemic-crash that impacted the entire market. Let it be said: We've been wrong about Disney to date, as shares have fallen roughly 30% this year on concerns about Disney+ subscriber growth and how quickly its streaming business can become profitable, as well as general market-wide valuation compression. Although streaming has become a show-me story, we continue to believe Disney's broader strategy and its renowned/franchise/world-building content puts them in a better position for success relative to a Netflix , which is in the volume business as it solely relies on a vast library with limited monetization opportunities. On the movie theater side, this business is finally coming back to life with the beginning of the summer blockbusters. Over this past weekend, the newest Marvel Cinematic Universe movie "Doctor Strange in the Multiverse of Madness" pulled in $185 million in domestic box office sales and $450 million globally. This strong start to the season is a great sign for Disney because nobody makes more blockbusters than them. These are profits that were nonexistent during the pandemic. Lastly, what we will continue to argue — and why we have remained positive about Disney — is that the margins and profits at the domestic theme parks have never been stronger. (Jim Cramer's Charitable Trust is long DIS. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Cinderella Castle in Walt Disney World.

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