Along with 17 other companies, Warner Bros Discovery is part of The EWM Interactive Stock Portfolio. In its current form WBD is less than one-year old after Discovery acquired the movie studio from AT&T. Given its high-quality content and top-notch management, we believe its long-term prospects are exceptional. Coupled with the stock’s low valuation, the odds are good that market-beating returns await investors in this name in coming years.
Harry Potter Legacy‘s $850 million in sales in just two weeks demonstrate the huge potential of Warner Bros.’ gaming division. The recently-announced new Lord of the Rings and Harry Potter and The Cursed Child movies are virtually guaranteed to be blockbusters. Joker: Folie à Deux is also very likely to exceed the $1B sales mark. All told, we’re highly optimistic about Warner Bros Discovery ‘s future.
That being said, bull markets don’t move in a straight line. True, the stock nearly doubled recently, from a low of $8.82 in December to as high as $16.34 a few days ago. A close examination of the structure of this recovery, however, suggests a notable pullback is likely to occur before the bulls can return.
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The sharp surge from under $9 to over $16 a share looks like a textbook five-wave impulse. We’ve labeled the pattern 1-2-3-4-5 in wave (1). The five sub-waves of wave 3 are also visible and marked i-ii-iii-iv-v. Wave 5 is an ending diagonal. If this count is correct, Warner Bros Discovery stock is already in an uptrend.
On the other hand, the Elliott Wave principle states that a three-wave correction follows every impulse. The current drop from $16.34 is most likely the beginning of this correction. Second waves are usually deep, so we expect wave (2) to retrace at least 50% to roughly $12.50. The good news is that at that point the 5-3 wave cycle would be complete and the stock’s bullish adventure should resume. In our opinion, Warner Bros Discovery has everything it takes to be a long-term success. We therefore plan to take advantage of the upcoming share price weakness and add to our position.
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