Media stocks have been in the headlines due to management shake-ups, merger battles, a changing regulatory environment and ongoing shifts in consumer trends. Despite the industry's volatility, several top experts and MoneyShow.com contributors see upside opportunities among select media stocks.
We previously bought and sold Liberty Global Plc (LBTYA) , but the stock has once again risen to the top of our buy filters. Under the consumer brands Virgin Media, Unitymedia, Telenet and UPC, the firm's digital platforms and next-generation networks connect 22 million customers subscribing to 46 million TV, broadband internet and telephone services.
In addition, Liberty Global owns 50% of VodafoneZiggo, a joint venture in the Netherlands, as well as significant investments in ITV, All3Media, ITI Neovision, Casa Systems (CASA) , Lions Gate Entertainment (LGF.A) , the Formula E racing series and several regional sports networks.
Liberty Global is the largest multinational cable company in Europe, and following the sale of systems to Vodafone (VOD) , Liberty Global will continue to be Europe's biggest multinational cable operator, with systems in United Kingdom, Ireland, Belgium, Switzerland, Poland and Slovakia.
That move is not without controversy, with other large players objecting, saying it would lead to excessive market concentration and monopoly. The company's aim in asset rebalancing is to focus on fewer European markets where it sees the best opportunity to scale.
The company just hired the former CEO of TiVo (TIVO) as their EVP and chief technology officer, and Bill Gates disclosed in May that he controls a 5% stake in the class A shares of Liberty Global. Meanwhile, the shares outstanding at Liberty Global have been reduced by 6.89% in the last 12 months.
CBS (CBS) has been in the news recently due to claims of sexual harassment and misconduct being made against top CBS executives, including CEO Les Moonves.
Due to these allegations, one analyst called CBS stock "uninvestable" until the issues are resolved and there is clarity on what will happen to top management.
While some apparently view CBS as "uninvestable" in the near term, I remain positive on the firm's long-term prospects. CBS has been making great strides in monetizing its content across a variety of distribution platforms. The stock is cheap relative to its peers, and I like the takeover kicker these shares offer.
To be sure, the near-term picture is cloudy at best. But investors willing to look past the near term should find ample rewards. I own these shares and plan to maintain my positions. CBS offers a direct-purchase plan whereby any investor may buy the first share and every share directly from the company.
Nexstar Media Group (NXST) is the second largest owner of local television stations in the U.S. The company owns, operates, programs or provides services to 170 TV stations covering nearly 39% of households, including within 20 of the top 50 markets in the country.
Over 80% of the company's station portfolio is comprised of network affiliates of the big four networks: ABC, CBS, Fox and NBC. Nexstar is the largest affiliate group for CBS, the second largest for NBC and Fox, and the third largest for ABC.
Historically, the company's primary source of revenue had been the sale of commercial air time to local and national advertisers. A decade ago, approximately 90% of the company's revenue came from the sale of local and national advertisements.
Since then, retransmission revenues, collected from cable and satellite companies in return for the consent to retransmit the signals from Nexstar's television stations, have grown significantly as a percentage of total revenues. This has served to stabilize results.
In January 2017, the company completed the $4.6 billion acquisition of Media General. This deal was significant and increased its local broadcast television portfolio by two-thirds and more than doubled the company's audience reach.
Integration has gone well and expected synergies have been achieved more quickly than anticipated. The transaction required Nexstar to take on significant debt, but strong cash generation has allowed it to pay down debt, and the company plans to return to more normalized debt levels in 2018.
Management, which guides in two-year cycles due to the impact of political spending, expects a strong 2018 on the back of core advertising sales that are tracking improvements in the economy, midterm election spending, continued growth in retransmission and digital revenue, and the impact of tax reform.
On the back of growth in retransmission revenue, the integration of Media General, continued tuck-in acquisitions and tax reform, we anticipate Nexstar Media Group will be able to grow earnings 20% annually over the next five years and consider it a current Buy up to $137.00. The stock currently yields around 2.0%.
Discovery, Inc. (DISCA) reported second-quarter results Aug. 7 that reflected big gains in U.S. and international ad revenue and improved operating results that were offset by higher restructuring and other charges associated with the acquisition of Scripps Networks.
The company continues to deliver robust free cash flow generation and is paying down debt ahead of schedule. Its networks currently capture a huge market share of women's programming, including HGTV, Food Network, Animal Planet and the Oprah Winfrey Network.
Analysts are lowering their profit projections for this year, while next year's consensus earnings estimate remains unchanged. The current expectation is that Discovery will achieve EPS growth of 26.3% in 2018 and 48.8% in 2019. There will invariably be additional changes to those estimates in the coming days as analysts rework their figures and publish new research reports. The 2019 P/E is very low at 7.2.
The company carries debt levels that are higher than I would prefer. However, I recommend that investors keep their shares and consider adding to their position, due to the high quality of the company's entertainment franchise, very strong earnings growth and very low P/E ratio.
TiVo (TIVO) , recently yielding 5.6%, is an entertainment technology company. TiVo creates products and licensable technology that enable the world's leading media and entertainment providers to nurture more meaningful relationships with their audiences.
TiVo's management believes that their stock's share price is inappropriately low. As a result, management is in strategic discussions with entities that are considering buying TiVo's product and/or IP licensing divisions, because a buyout would bring shareholders a much higher share price than the stock currently offers.
As of early August 2018, management has conveyed that the negotiating process is well under way. Investors should not be surprised if a final lucrative buyout offer is announced at any time between now and year end.
TIVO is an undervalued growth stock with a very attractive dividend yield. With valuable patents, constant innovation in entertainment technology and a tiny $1.7 billion market cap, TiVo is an easy and obvious takeover target for any number of media conglomerates that want to "own instead of rent" the technology that's essential to their products and services.
Comcast (CMCSA) said adjusted earnings per share climbed 25% to $0.65 in the June quarter, surpassing the consensus by $0.05. Revenue crept 2% higher to $21.74 billion on 3% growth for the cable business and flat growth for NBCUniversal.
For years, Action Alerts PLUS holding Comcast focused on selling customers its "triple play" bundle of video, internet and voice services. The company is now pivoting toward offering internet as a stand-alone service.
Comcast added a net 260,000 internet customers, up from 175,000 for the same time last year. Net video subscriber losses accelerated to 140,000 from a loss of 34,000 in the year-ago quarter. Comcast is on our Focus List and is also rated as a Long-Term Buy.
Gray Television (GTN) shares surged after the broadcaster delivered better-than-expected earnings for the June quarter. Per-share earnings excluding items were $0.46, down from the year-earlier period but $0.05 above the consensus.
Revenue rose 10%, in line with expectations. Results benefited from strong demand for political advertising. Retransmission consent revenue -- the money that cable and satellite providers pay to Gray for using its programming -- also exceeded expectations. The company raised its revenue guidance for the September quarter. Gray Television is a Buy in Upside, our small-cap and mid-cap focused newsletter.
Netflix (NFLX) is the world's leading internet television network with 125 million members in 190 countries. The modern age of Netflix began in 2007 when video streaming was introduced and the world began to change.
Talk about explosive growth. In a little more than a decade, Netflix has enticed over 125 million worldwide members to pay between $8 and $14 per month. That's $16 billion a year ramping up at an annualized rate of 40%.
And while the business isn't enormously profitable, it generates $1 billion a year in free cash flow to plow back into the content library and keep those subscribers loyal month after month.
Netflix spent $6 billion on programming last year, an astounding amount. But the spend this year will approach $8 billion, and for 2019 the investment could be off the charts above $12 billion.
There's a simple reason for paying the big bills: global entertainment is a $2 trillion business opportunity so the more a company can spend to capture that audience, the more it can make. Many subscribers have no cable connection whatsoever. It's simply: Netflix. Streaming hours and hours each day.
What does the future hold? There are over 120 million households in the United States and Netflix currently has 52 million paid subscribers and another 1 million-2 million trial accounts in any given quarter. So, the firm has an addressable domestic market that is double its present level. And that is solely here at home.
Netflix has a healthy footprint everywhere on the planet except China, where only some backdoor alliances with local streaming video providers keep it in front of even a few of that nation's increasingly prosperous population. Nonetheless, with 6 billion people elsewhere eager to watch what they want on any streaming device, barely 1% of the addressable foreign market has been tapped.
What's not to love about Netflix? The company has a solid balance sheet with over $20 billion in assets, $2.6 billion of it in cash. There's only $6.5 billion in debt here, giving the company freedom to keep investing in programming or even implement the right strategic acquisition.
-- This article was originally published Aug. 9 on Real Money.