Add One of These Cable Network Owners to Your Portfolio

Damon is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

It is always a good time to purchase the shares of a major media conglomerate in light of their growing cable network businesses and the potential for ongoing expansion of those operations. Several top names remain good investments, as their scopes have never been greater and they continue to invest aggressively in efforts to stay vital.

The companies are modeled around their network businesses without a doubt and are thriving behind content improvements and subscription count gains. Here's a sneak preview:

Still going strong

Time Warner's (NYSE: TWX) core TNT and TBS properties each reach nearly 100 million U.S. households, and, based on the latest quarterly report, are generating higher subscription rates. International expansion has also driven profit for Time Warner. In the March quarter, a 5% increase in subscription revenues boosted total network revenues by 3%.

TNT aims to keep its programming fresh, based on the new series it has planned for this fall season. For one, a Steven Spielberg produced Peter Gunn, concerning a post-alien-attack society will hit the airwaves. Secondly the network will begin to air Lost Angels, a 1940s and 50s set drama about the Los Angeles police department and its war against a crime network led by boxer Mickey Cohen.

These, and other content changes ought to support healthy viewership. Plus, Time Warner is at the forefront of the digital revolution, with online and mobile expansion of its CNN, HLN, and Cartoon Network units. I believe investments in these assets will fuel earnings growth for the near and long term. Paired with the benefits of solid film/TV units, Time Warner should be a perennial powerhouse. 

Time Warner stock is trading at a still attractive P/E ratio on a forward basis of 14.5, based on 2013 and 2014 share earnings of $2.68 and $3.27. The company's Financial Strength and Profitability ratios outpace the broader industry. Thus, the shares are a good holding for media exposure.

Young audience approved

Viacom (NASDAQ: VIA) built itself on its MTV, VH1, and Nickelodeon networks, among numerous others. It is realizing increases in advertising and affiliate fee revenues, thanks to the quality of its programming and a renewed focus on investments in its cable businesses, particularly new programming.

Nickelodeon is rolling out a number of new animated shows while MTV is increasingly targeting females with the launch of programs like Girl Code. This is in addition to continuing ratings-grabbing series like Catfish and Teen Mom 2 at MTV.

Where Viacom is faring well with its core youth viewers should be through its mobile apps, and deals with online broadcasters, such as its Nick app and its Netflix deal. Finally, its Paramount film unit is enjoying an improved year at the box office and will likely remain a top player in the industry. 

The stock is trading at a forward P/E ratio of 13.5, based on 2013 share net of $4.70 and 2014 share net of $5.45 (fiscal years end in September). Most of its Financial Strength and all of its Profitability ratios are better than the industry as a whole. Viacom shares are recommended as a long-term holding.

The one and only

Disney (NYSE: DIS) has experienced outstanding growth in affiliate fees because it owns ESPN, cable's largest ratings generator and the only national sports network. Indeed, affiliate fees climbed 13% year over year in the March quarter. I surmise that Disney will maintain this advantage for years subsequent to this. 

Possibly more so than programming, Disney has utilized resources to grow its international presence. Currently, it is placing focus on regions including Latin America, Canada, Australia, and New Zealand. For more on Disney's overseas ambitions, see my prior blog on that topic.

In terms of digital expansion, Disney operates units such as ESPN3, a broadband service reaching 70 million subscribers, and ESPN Mobile Properties.

The company's stock is trading at a forward P/E ratio of 16.6, based on 2013 and 2014 share net of $3.47 and $3.94, respectively. I suggest Disney shares for most investors. Its film and theme park units ought to fare well enough to support share-profit growth out 3 to 5 years that exceeds the market average.

In closing

Not only do these entertainment giants have strong cable businesses with upside, they offer diverse asset mixes that limit their downside. As the companies expand beyond television and domestic operations, while keeping their programming up-to-date and popular, they are likely to perform solidly. What also makes these better than upstart entities is their vast resources that will allow them to be market leaders continuously.

Damon Churchwell has no position in any stocks mentioned. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of Walt Disney. 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!

blog comments powered by Disqus