Check Out These Three Media Stocks
Damon is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Within the entertainment sector, owners of cable television networks, as well as of heavily visited subscription-based networks, appear to have the most profit upside. As the number of media alternatives available to consumers continues to grow, these businesses are gaining a greater proportion of advertising dollars, while print publishers, broadcast TV network owners, and traditional radio broadcasters' market shares are narrowing. If you are seeking to reap the rewards of this trend, here are several stocks that may be suitable for you.
AMC Networks Inc. (NASDAQ: AMCX)
Formerly a broadcaster of classic films, AMC is making strides with the production of first-run dramatic series, all growing their audiences at double-digit annual rates. For one, the 1960's ad-firm based Mad Men, first introduced in 2007, is still drawing new viewers at a solid rate. Moreover, it has received acclaim as an Emmy-award nominated and winning program. Secondly, Breaking Bad, about a troubled high school teacher on the lam, is gaining heightened attention. Finally, AMC's most recent hit, The Walking Dead, turned in a 50% ratings jump in its third season.
AMC's ratings boom has allowed it to generate increased ad rates, boosting ad revenues more than 20% year over year. Plus, distribution revenues are climbing behind distribution, licensing and home video demand. On that note, AMC also owns the WE and IFC networks, as well as the Sundance Channel.
In sum, AMC persists in investing in programming. It should have at least several more solid years of growth subsequent to this one. AMC is appealing as a growth investment or long-term holding.
IAC/Interactive Corp. (NASDAQ: IACI)
The company's search engines Ask.com, About.com (acquired September, 2012) and Dictionary.com, are driving top-line gains. Certainly those, along with its "Match" sites, are also supporting margin expansion by way of increased subscriber bases. Despite IAC's Local, Media, and Other categories operating in the red, the profit margins look impressive, at about 7.9% in the March quarter.
With a solid base of core revenue-expansion units, whether or not it decides to shed the unprofitable units, IAC/Interactive should be well positioned. The company is putting cash to good use, acquiring search and dating properties, as well as repurchasing shares. Its share-earnings expansion prospects are outstanding for the coming year. Based on better-than-30% share-net expansion this year, the forward P/E is just over 10x, rendering the stock a good value for those seeking an investment in this industry.
Discovery Communications, Inc. (NASDAQ: DISCA)
This operator of the Discovery, TLC and Animal Planet networks is capitalizing on the broadening presence of pay TV channels in Latin America, as well as the so-called "free to air" movement in Europe, which is allowing non-subscribers to view cable programming. As a result, both distribution and advertising revenues are soaring abroad.
As few earnings catalysts are currently in place domestically, Discovery is focusing its investments overseas. For instance, late last year it purchased a European sports network, in addition to five Italian TV channels. Plus, early this year it bought out an additional 30% of Discovery Japan, giving it a 50% ownership. Along with buyouts in Dubai and Latin America, it is building a greater stronghold in growth markets.
DISCA stock offers capital appreciation potential, though gains are partially priced in likely. Similar to IAC, earnings could climb more than 30% this year, and the shares would then look more enticing. Buybacks ought to help boost share net and thus shareholder returns.
Foolish wrap up
These companies incorporate many of the aspects inherent in well-performing media entities. These factors consist of growing advertising and affiliate revenue, along with investments in growing sectors of the entertainment industry. They may benefit, too, from an expanded presence in digital platforms and international units.
Of the three discussed here, my favorite at this juncture is AMC Networks, based on its robust, organically-generated earnings expansion prospects for the near term. All three would be good additions to a portfolio focused on growth.
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Damon Churchwell has no position in any stocks mentioned. The Motley Fool recommends AMC Networks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!