Read All About It: This Media Company's Stock Tells a Good Story

Traders abhor buying stocks when negative quarterly comps are expected. They can't figure why those stocks could go up, until positive comparisons arrive again. When everybody is convinced of something, there is often opportunity for those who look out further while concentrating on absolute value, rather than earnings momentum. That certainly appears to be the case with media company Meredith Corp. , publishers of some of America's most popular magazines and the owner of 17 local TV stations. A partial list of MDP's publications is shown below. The company even offers Spanish-language versions of some of the most-read titles such as People. MDP's TV stations are geographically diverse. They reach over 12 million U.S. households. Online consumer offerings and business-to-business services round out Meredith's portfolio. Operating earnings were pretty good over the past decade. From 2010 through 2019, MDP's annual dividend rate grew 152.7%, from 91 cents to $2.30. Meredith's January 2018 acquisition of Time Inc. caused some disruptive effects which might negatively impact 2020's result. Later on it should contribute nicely to bottom-line growth. Value Line sees 2024 EPS reaching $7.50 after a slight dip to about $3 this year. What is MDP really worth? Since 2010 the stock's average price-to-earnings, or P/E, ran about 15.5-times, accompanied by around 3.76% in current yield. At its Wednesday close of $32.32 MDP was available for just 10.8-times this year's already reduced estimate while paying a generous 7.12% yield. It dropped even further by Thursday to $32. Even a partial reversion-to-the-mean valuation rebound supports a very conservative, end of Dec. 2020, price target of about $42. Reaching that modest goal would translate into greater than 37% in total return. That projection is far from an upper limit. MDP gave traders a chance to sell between $53.80 and $72 during each of the last seven years, including 2019. Long-term prospects appear even brighter. Value Line's annual average returns out to 2024, in the graphic below, were calculated when MDP still fetched $37.64. I'm not alone in my positive view on MDP. Independent research house Morningstar calls Meredith's present-day fair value as $40.82 per share. Buying shares outright seems like a great play for those willing to look past the next few quarterly reports. Fiscal 2020 ends on June 30. Option-savvy traders can set up a June 19 expiration date buy/write combination that could provide outstanding total return, even if the stock goes nowhere over the coming five months. Buy/Write combinations involve purchase of shares while simultaneously selling covered calls and naked puts on the same underlying shares. For ease of understanding, the table below illustrates a 1,000 share, 10 call and 10-put quantity. These trades could be done with as little as 100-shares along with single call and put options. On expiration day there are only two possible outcomes. MDP can finish at $30 or above, or below $30. The best-case scenario plays out if MDP simply holds $30, a level it exceeded as of trade inception. If so, the box below details exactly how the entire buy/writer combination would unfold. The total return would equal 21.8% cash-on-cash over the 0.43-year holding period through June 19. It's hard to imagine, but true, that the annualized rate on the entire combination would equal 51% on a stock which did not even need to go up. How cool is that? There's no guarantee that MDP won't sink to below $30 by June 19. If it does, the following worst-case scenario would play out as described below. A break-even point of just $27.21 per share, though, means any decline of less than $5.11 per share (-15.8%) would still leave buy/write combination players with at least a slight profit. How worried can you be about owning shares of a good-quality, high-yielding company at a price not seen since the first half of 2012? Back then MDP's EPS were on pace for just $2.12 and the annual dividend was 39.1% below the current rate. Meredith is primed to move much higher over the coming two to four years. Buy some shares, sell some puts or consider setting up a buy/write combination. Starting on next Monday, expirations out to Sep. 18 will become available for those wanting to lock in larger option premiums and even lower break-even points.

Read All About It: This Media Company's Stock Tells a Good Story

Here's a page-turning strategy on how to profit from publisher and television company Meredith.

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