The Good News on Media Stocks
Nate is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Let's get this out of the way up front: I'm a major Disney-phile. Not in a business sense--more in a 'I have two pre-teen girls who ask to go to Disney World every week' sense. Just one of the joys of living in South Carolina, where my kids know that we can drive to Disney World in less than 6 hours. Seriously, they've made that argument.
Still, just because I like Disny that way doesn't mean I don't like it as a business. I think very highly of The Walt Disney Company (NYSE: DIS). It's a media company and, given my background in media, I think about how media is doing a lot. I'm critical of media firms when they do stupid things and I like to praise them when they're on top of their game. Heck, I probably think about it too much.
Disney's not the only media giant out there, of course. There are several others, all of whom you should be observing closely if you want to see some profits. While some are good, others have more questionable futures. How you read them will determine how your portfolio will do.
It's been easy to be dismissive of the Mouse. A great many unsophisticated investors just lump them in with their kid's movies and don't take them seriously. Let me make this plain: Disney is a great, well-run firm that has a long-term plan and is executing on it. The firm's movie business has been bolstered by the acquisition of Marvel Comics in 2009. Three years later The Avengers pulled in more than $1 billion dollars. Last year they bought Star Wars. In three years what will that equal? They also got the Indiana Jones franchise in that, too. Combine that sort of media property with the ability to leverage the theme parks and the marketing of toys games and licensed items? The sky is now the limit, and we might see Disney become the preeminent media empire in the world. The company's share price has reflected growing confidence. With a 1.38% dividend, the shares have grown from $40.46 to $54.29 in a year, and its P/E is still a bit high at 17.36. Watch for Disney to go on at least a three year run to the upside.
News Corp (NASDAQ: NWS)
More known for its controversial Fox New cable channel and chair Rupert Murdoch, News Corp is actually a fairly subtle enterprise. A combination of television, print, movies and other media, News Corp has a lot of different pieces that can make things happen in diverse ways. The company is preparing for a split of its publishing arms and its film and television business. Ostensibly a reaction to scandals last year that threw dirt at the print arm, I think the move was likely thought about for a while beforehand. Shares in News Corps were flat the first half of 2012 until June when it started a run that saw it grow about 60% in eight months. There's still some growth there as things move towards the separation of the two units into different firms.
Time Warner (NYSE: TWX)
Time Warner is very well known, or should be; it owns cable and broadcast networks, movie studios, and magazines. While I'm writing this ahead of earnings, an earnings preview anticipates growth in both earnings and revenue for the fourth quarter. While the movie business may be flat, the improving economy is treating TWX well in increased cable and ad revenues. Nonetheless, of the companies that I'm discussing here, Time Warner is the one I'd be most cautious about. There's a lot to like there, but I'm not certain the firm knows how to properly exploit it right now. From the numbers things look good. The stock is up about 30% over the last year, the dividend yield is above 2%, and the P/E is good but not crazy. But your money could be better invested in one of the other companies in this article.
Investing in media can be enough to make one buy antacid by the barrel, I know. I worked in it long enough to rub my head in dismay at times. Still, a well run, large media empire can leverage its properties like no other. The ability to use a company's networks and communications to promote other divisions is enormous and it's something no other sector has. Just choose companies that aren't too vulnerable to the swings of the buying public. And be cautious around any that have a significant print news group. That's something that's still sorting itself out.
Follow Nate on Twitter: @natewooley
More columns by Nate Wooley:
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- Media Hype Over Apple and Technology Stocks
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nwooley 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!