Why Twenty-First Century Fox Shares Should Stay in 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.

Former News Corporation (NASDAQ: NWS) shareholders from before the company's split on June 28 should be delighted to know that the value of their investment may well increase more than it would have if the company were still a combined entity. The insertion of fresh management into the new News Corporation publishing business ought to allow for a heightened focus on those assets. Meantime, newly created Twenty-First Century Fox (NASDAQ: FOX) should benefit from margin enhancements, boosting its appeal as a growth stock.

Indeed, management has a strategy in place for the News Corp business, as outlined in my previous posting: "What the New News Corp. Adds to Your Portfolio." Continuing Chairman Rupert Murdoch had put the plan in place prior to the separation. On that note, Mr. Murdoch will remain as Chairman and CEO of Twenty-First Century Fox.

Revisiting News Corp as an independent firm

As the new CEO of News Corp, Robert Thompson will oversee publishing, education, and other Australian assets. Mr. Thompson had been editor in chief of Dow Jones and managing editor of The Wall Street Journal. He is ceding those roles to Gerard Baker. In addition to this, at least four other management appointments have been announced.

News Corp consists of the existing newspaper and information services, such as The Wall Street Journal and Barron's along with book publishing and integrated marketing services, including digital real estate. Its newspaper operation has a presence in the U.K., Australia, and the U.S.. In the U.S., it owns one metropolitan paper and one national newspaper that are alongside its financial publications.

Results at these operations were suffering, particularly from weakness in the Australian market. A challenging economic climate there was cited recently for a downturn in advertising revenue.

Shareholders ought to be comforted by the fact that News Corp is a strong cash- flow business, and intends to pay a regular dividend. Plus, the company's strategy is sound, as it plans to invest in content, be it traditional or digital publishing related.

As I have said in the past, this focus on the quality of publications ought to help support subscription numbers and allow the company to sustain solid profitability. We will get a better idea of what its profits might look like when it reports earnings on August 14. Share net for the June quarter may well be reported at about $0.25 pro forma (as if the split had already occurred).

Why Twenty-First Century Fox could well thrive

Twenty-First Century Fox is composed of cable and television, filmed entertainment, and direct satellite broadcasting assets. Its cable networks are Fox News, FSN, FX,and numerous other networks that are mostly sports-broadcasting units. As for films, its Fox Filmed Entertainment subsidiary produces major motion pictures, while Twentieth Century Fox Home Entertainment distributes in-house productions in home-media form. The satellite business is composed of Sky Italia, as well as interests in BSkyB and Sky Deutschland AG.

Having parted with the publishing operations, Twenty-First Century Fox will be a higher-margin company than the old News Corp. It might also be a bit faster growing on a pro-forma basis.

This is dependent somewhat on ongoing gains in cable network earnings. Segment operating income rose 16% in the March quarter, owing largely to growth in affiliate fees received from cable system providers, particularly overseas.

Looking forward to fiscal 2014 (ends in June), I think the cable unit will remain on an upturn as increased subscription rates and international initiatives such as in Latin America continue to take hold. Plus, a better slate of film releases, such as The Wolverine, will help lift film profits.

Twenty-First Century Fox shares are a choice for growth once the gains from the split begin to be realized. They are a good selection for most long-term portfolios, as well, in light of the company's various businesses with upside profit potential.

Mexico-based broadcaster and publisher may prove worthwhile as a holding

Another company with a foothold in the Spanish-speaking market, in fact the largest media firm in that category, is Grupo Televisa (ADR) (NYSE: TV). The firm owns four broadcast channels in Mexico, along with affiliates. It also produces national and international pay-television channels.

Moreover, it is a major global Spanish-language magazine publisher. Publications include about 186 titles in 20 countries. Finally, the company owns stakes in numerous digital and satellite businesses.

Grupo Televisa is notable for its likelihood of a profit rebound at this juncture. This upturn ought to be fueled by strong growth in subscription revenue, as that metric climbed 17% in the first quarter. Furthermore, an advertising sales bounce may well emerge if spending by government entities picks up.

The shares are trading at a forward P/E of 21.4 times. They have dipped from earlier this year, and are apt to provide upside should the positive outlook remain intact.

Broadcast and publishing stocks

Twenty-First Century Fox, News Corp, and Grupo Televisa are just three examples of broadcast and/or publishing media companies that offer long-term value. Their performances are primarily functions of affiliate and subscriber fees gained through distribution expansion, as well as advertising spending. Quality of content is certainly a factor that differentiates media firms, also. 

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Damon Churchwell has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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!

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