Laundry Avoidance - The Communications Industry
I often get a bunch of useful tasks done while I am avoiding doing my laundry, but eventually you have to get that hated job done.
I have been avoiding writing about Cable One - CABO for as long as possible. The stock is done 40% since January. First quarter results were down 5-10%, but the long-term story of concentrating on high value customers in more rural markets is still the same.
This unique set of cable assets was started under The Washington Post, but has been independent since 2015. There is increased competition in internet from the big three long distance companies, but that was expected. Traditional video cable has its issues, but CABO has been deemphasizing that business for years.
The stocks sells for 9x earnings, 6x EV/EBITDA, and book value.
Short interest has ballooned to over 20% of float because of a unique deal with a 55% owned subsidiary, Mega-Broadband. The fear is CABO will be required to issue equity to complete the deal. The company disputes this, but short sellers can be loud.
In generally I try to avoid controversial stocks, but here I have stumbled into one. I cannot bail at these valuations. I think it will be educational to see what transpires, but other stocks in this sector would be simpler.
The balance sheet is better than it looks because CABO has minority equity investments of over $1 billion in smaller cable systems.
The CEO, Julie Laulis, has been considered an industry genius for over 10 years. I cannot believe she suddenly got stupid this quickly.
There are 10 other ideas in this sector that compete with CABO. Many of these stocks are near their lows. I guess the fear of advertising cuts in a recession, or more carnage in streaming, has made this an unpopular sector. It is time for value investors to dig in.
Other ideas is Communications Services:
Interpublic - IPG - $28 - I want to own this stock. At a PE of 10x, a yield, of 4.5%, and a pristine balance sheet, what am I waiting for? I still just do not understand how IPG makes money in the digital world. Are they participant in the Google advertising monopoly, or they just a bystander? Wall Street is lukewarm with 7 buys and 6 sells. IPG lost money 4 years in a row 2003-6, how cyclical will this business be today?
Ziff Davis - ZD - $53 - This is another stock with a good “feel”, that I can just not get my arms around. At first this appears to be a strange collection of somewhat outdated websites, but a closer look shows guys who know how to make money in the digital world. The stocks sells for only 5-6x EV/EBITDA, for a business with strong historical growth. The only value investor that owns the stocks is Chuck Royce with 3.5%. Wall Street believes, 6 buys, 2 sells, but the stock is down from $125 to $50. ZD remains a mystery.
Warner Music - WMG - $30 - What is the music catalogue worth? The company has a complex history. No value investor has stepped up so far, now more than 2 years after the spinout. Watching carefully.
Nextstar - NXST - $168 - Is there a place for local television stations? NXST makes the argument the business is not dying, and could thrive after the multi-billion dollar loses in streaming and sports/cable. Warming up in the bullpen.
Madison Square Garden Sports - MSGS - $195 - The Knicks and the Rangers are clearly worth at least $300/share, but Mr. Dolan is only 69 years old, and in seemingly good health. Both teams did well last season, so what should the discount be? Reasonable people will disagree. Maybe Dolan would be more likely to sell if the teams were doing badly. Pass for now, but always interesting.
Marcus - MCS - $11 - These are smart guys, trying to manage a company in a horrible industry. Most movie theatre owners are just plain stupid, but MCS grinds out a decent profit. They made a solid $2/share pre-Covid. Can they get back there? A new hedge fund called Gate City thinks they can and has recently bought 10% of the company. Gate City owns some very interesting companies. More work is needed here. Maybe this is a classic small cap idea.
IAC Corp. - IAC - $46 - Strange combination of internet businesses, and a big (35%) investment in MGM, the casino company. Barry Diller still owns a few shares. Confusing at best, buy legendary value guy Mason Hawkins owns 3%.
John Wiley - JLY - $43 - Maybe this is the real AI winner, but I am troubled by publishing scandal. Waiting for the smoke to clear.
Manchester United - MANU - $16 - When do the Glazer kids want to sell? The team is doing poorly, but still kept their manager. A very long-term story, but the value is there, and plenty of buyers are waiting. Reasonable idea
Verizon - VZ - $41 - I wish they had done better with business customers in the past 6 months. Reasonable holding, but I prefer others
Warner Brothers Discovery - WBD - $7 - The debt level is just too much.
Paramount Global - PARA - $12 - Not much of a premium offered, avoid
Liberty Broadband - LBRDA - $54 - Can Malone find the old mojo? Maybe
Comcast - CMCSA - $38 - Hard to turn a $150 billion supertanker around in the current industry conditions. It is the 3rd largest holding of my favorite guys at Barrow Hanley, but I just don’t see the attraction.
Charter - CHTR - $302 - In this regulatory environment, who could buy them?
AT&T - T - $19 - I fear they have under-invested, but it is a hated stock.
Match Group - MTCH - $29 - Just the kind of weird business that value investors should investigate. Debt was added during the pandemic. Can they find a match for an old guy that compulsively writes boring investment research all day?
Iridium - IRDM - $26 - The often silly and crazy Elon Musk messed up the satellite business. There might be a story here, the fleet is fairly new, and maybe the need for high quality service is real. Ron Baron owns 10%, so lets not ignore.
Lionsgate Studios - LION - $8 - A recent spin that could be interesting. Let’s watch.
Scholastic - SCHL - $35 - For me, this has been a 20+ year restructuring story. The base business is better than most understand. Give it one more look.
Roblox - RBLX - $38 - I swear to God, I will give RBLX serious consideration if it gets back to $25. Maybe a great long-term story, with short-term hurdles.