Cable Companies Worth Considering
Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I'm not really a TV guy, but I know cable is a big deal. So I've decided to check out a few cable companies and see if I can find a good company for a good price. I fired up the old stock screener and did a search for companies of a reasonable size ($2 billion market cap), a price/earnings ratio under 20, and of course some profitability. I figured those would weed out the companies that would be likely to fail, so let's see what I've found.
I Like to Learn
Shaw Communications (NYSE: SJR) is a company I hadn't even heard of before. That's not surprising, since it operates primarily in Canada. Now, some people would say that this will probably produce currency issues between US and Canadian dollars, but I say that Canada's a very economically solid country and Shaw's 14.6% profit margins and 4.3% dividend yield speak volumes about its stability. I'm not super fond of how Shaw is trading at 2.8 times earnings because I like a real steal of a deal, but I do like Shaw's 13.75 P/E ratio for being below the market range. If Shaw gets down to under a 10 P/E I'll really like it because I consider that the gold standard for a solid deal.
Fighting to Not Lose
Viacom (NASDAQ: VIAB), however, is a more local TV juggernaut. Being the fourth-largest media conglomerate in the world with a $26 billion market cap does offer some stability. While I'm not a big fan of not having much shareholder control (Viacom is primarily owned by National Amusements), I do like how Viacom is a spin-off of its former self and has more room to grow. Of course, with 170 media networks, this is a pretty big company in and of itself. I'm not sure if I like that Viacom kept MTV, which from everyone I've spoken to has been a shadow of its former self over the past decade or so. I'm also a little hesitant about Viacom's Paramount Pictures ownership, since it only co-produced about a third of the movies I've heard of and mostly just distributes the work of companies like Dreamworks. While I like distribution deals because they provide a smaller capital investment for a film that could flop, I don't like that they're taking a shorter-term role rather than actually owning the film as a property. Maybe that's just my desire to win talking, though. Viacom's making a respectable 14.3% profit margin and trading at 14.43 times its earnings, so I'd give it the go-ahead for more research.
Making Gutsy Moves
Time Warner Cable (NYSE: TWC) is a bit of an oddball. Also a spin-off, it actually has to license the Road Runner High Speed and Time Warner brands from its former parent company, Time Warner. I can't imagine that's good for cash flow. I also don't like how TWC made deals to trade certain cities with Comcast during their joint venture to purchase Adelphia and many of its subscribers. I like that they got Los Angeles, but I think getting Dallas in exchange for Houston was a bad idea. Houston's smaller than LA, but I consider its economy more robust because there are so many businesses headquartered there. But ultimately I think TWC's $29.19 billion market cap and 10.% profit margins will be buttressed if it can get data metering up and running. Rather like electric, gas, and water companies, all a cable or Internet company does is shift shows and energy around and charge what it can for the convenience it provides. I just hope my ISP never starts doing that, or at least that the pricing gets protected under the local utility regulatory commission.
Virgin Media (NASDAQ: VMED) is the runt of this list, coming in at just under a $10 billion market cap. And I can't believe I'm calling that a small figure. I really like that Virgin Media was the first company in the UK to offer TV, Internet, mobile and land line phone service, and I think the company has a strong moat because Virgin is the only company to have a fiber-optic cable network on the national scale in the UK. The dividend is a bit light at .4% and the P/E ratio is a little rich for my tastes at 27.18 times earnings, and I really can't recommend doing much more than occasionally eying Virgin because it also trades at 12.4 times book value. It's not a great deal in my opinion, but I do like the company itself.
pongun has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. 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!