Brokerage firm Jefferies also likes our first idea—a media company, saying it’s a great buy, based on valuation and international growth prospects. Our second recommendation is a sale of a pharmacy stock.
Buy: Twenty-First Century Fox, Inc. (FOXA)
From The Complete Investor
Twenty-First Century Fox (FOXA), which has been selling off units that didn’t fit into its three core competencies of cable, network TV, and film. Though the company has not participated in the consolidation sweeping through the industry, that doesn’t bother us, as we don’t think that putting media assets in the hands of giant companies confers any great advantages.
Indeed, Fox’s strongest suits are its focus on three interrelated divisions and its generation of a great deal of free cash flow. Moreover, the company’s three units each represent strong franchises. Its TV network competes with only three other networks and has a very strong position in sports, which allowed it to take full advantage of the recent historic World Series. The movie studio is one of the world’s largest and thanks to Marvel has one of the strongest cinema and TV franchises.
Fox’s strongest franchise is its cable assets, particularly its news channels. It’s the only news network directly associated with a broad swath of the American political scene. The recent high-drama presidential election campaign greatly benefited the network, which should be able to continue to command high advertising rates given its strong appeal to particular demographics.
Financially the company is in great shape with a free cash flow yield of around 8%. While this cash-generating ability could support a major acquisition, we think it’s more likely that Fox will pay down its debt and repurchase its shares.
As with most media companies and especially those that depend on cinema and hit TV series, profits have followed an erratic growth path. But when you step back you will find that over the past decade earnings have grown at an 11% clip, as have most other metrics such as free cash flow.
Twenty-First Century Fox represents growth on the very cheap, and it is a strong buy.
Stephen Leeb, PhD. And Genia Turanova, The Complete Investor, www.completeinvestor.com, 866-833-2070, December 2016