2 Media Stocks to Buy Now
David is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
While media can often be unpredictable given the fickleness of consumer demand, there are some brands that are just here to stay… and grow. In my view, the top firms are those that are diversified and continue to make investments in the future that are based on momentum from recent successes.
Disney (NYSE: DIS)
As one of the strongest brand names in the world, Disney is easily both a growth and safe stock. What many do not see in the company, however, is an incredibly undervalued media platform. From theme parks to a virtual monopoly in sports entertainment and a flagship film branch, Disney is well diversified to cross-sell business segments. It has gained nearly 40% for the year to date and will continue to appreciate if not through multiples expansion then certainly through momentum.
As weak as sales were for John Carter, The Avengers helped to offset in the film segment. 3Q12 results represented a 30% growth, which was particularly fueled by rising demand in theme parks and the accompanied boost in hotel and cruise ship sales. Margin expansion in these categories is also keeping the value story alive. With Shanghai Disney under development and greater investments being made in Hong Kong Disney Land, management is not resting on their laurels. Once they open the former, I anticipate the wave of growth coming from emerging markets to draw in investors looking to profit off of a full recovery. I say this with optimism, since recent launches and reopenings in the vacation segment have fared well. The reopening of California Adventure has drawn around 50% of total attendance to Disneyland Resort (up 25%), while the launch of Disney Fantasy has more than doubled guest capacity. Hong Kong Disneyland investments have already paid dividends, since the park set a third quarter record in both sales and attendance.
According to the company's successful CEO Bob Iger, "[Shanghai Disney] is the most exciting international project in the history of [Disney] and it's certainly the biggest investment we have ever made outside the United States!"
Viacom (NASDAQ: VIAB) More Undervalued Than Comcast (NASDAQ: CMCSA)
Viacom is also worthy of an investment. Results over the last five quarters were ahead of consensus four times. The stock now trades at a compelling 13.2x past earnings and a PEG ratio of 0.9. To put that into perspective, consider that Comcast trades at 21.2x past earnings. Analysts forecast Viacom to grow EPS by 14.6% annually over the next five years.
Assuming Viacom meets expectations, 2016 EPS will come out to $7.17. At a multiple of 15x, this translates to a future stock value of $107.57. Discounting backwards by 10% yields a present value of $66.79, which is at a more than 20% premium to the current market cap.
The diversified media company is also making solid investments in the future. It recently reached an agreement with Amazon, Hulu, and YouTube to add movie titles to their respective libraries. This is an ideal way to confront the inevitable piracy in media while penetrating social media that goes beyond traditional viewing mediums. Moreover, the recent decision to set aside a $10 billion fund for share repurchases will be tremendously accretive for the $28.1 billion firm.
When you compare this to Comcast, which is virtually at its 52-week high and 80.4% above its 52-week low, the upside is excellent. Though Comcast is forecast for a few basis points greater in 5-year annual EPS growth (15.3%), the multiples are elevated too high against the bull run. I recommend buying shares in the underperformer, Viacom, to capitalize off of a market correction.
TakeoverAnalyst has no positions in the stocks mentioned above. The Motley Fool owns shares of Walt Disney. Motley Fool newsletter services recommend 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.If you have questions about this post or the Fool’s blog network, click here for information.
