Time Warner Inc. (NYSE: TWX ) has been selected as the "undervalued stock of the month" by Paul Tracy, in his StreetAuthority Market Advisor.
The advisor explains, "We think the company's days as an industry laggard are over and we think the company is well-positioned to leverage its valuable assets and unlock shareholder value in the years ahead."
For those unfamiliar with the company's operations, he explains that Time Warner is the largest media conglomerate on the planet. First, he notes, there is AOL, which has built a powerful network of highly-trafficked web sites. He explains, "Its ubiquitous instant messenger service is used to send 1.8 billion messages every day."
Then, he adds, there is Time Warner Cable Inc. (NYSE: TWC), which has grown to become the nation's number two cable provider with a massive base of 15 million customers -- roughly half of whom have signed up for premium services such as digital video or high-speed internet.
The film business, he points out, includes Warner Brothers and New Line Cinema, and has "raked in billions" in global box office revenues from blockbuster hits like Harry Potter and The Lord of the Rings.
In fact, he says, Warner Brothers is planning to bring the Harry Potter world to life, unveiling plans to collaborate on a new theme park based on the "wildly popular" series.
On the publishing side, he notes that the Time subsidiary is a "global empire." And the networks segment includes HBO and its 40 million domestic subscribers, as well as Turner Broadcasting -- home to CNN and the Cartoon Network.
Says Tracy, "As might be expected for a giant the size of Time Warner, considerable economies of scale come into play -- but that is just the beginning of what gives the firm a sustainable competitive advantage."
AOL, TNT, Time, and Warner Brothers all possess dominant market share in their respective industries, he notes, and each division he says might make for good investments as stand-alone companies. Collectively, he observes, they form a "media powerhouse."
Meanwhile, he explains, the company's online and international growth initiatives have already begun to pay off as AOL has recently rolled out new internet portals in India, the Netherlands, and Australia.
And, he adds, Warner Home Video has become the first U.S. film company to break into the lucrative Chinese market -- securing video distribution and marketing rights through a joint venture.
The advisor states, "Plagued by asset write-downs, shareholder lawsuits, and poor capital allocation decisions, it has been a bumpy ride for Time Warner shareholders lately. Over the past five years, the stock has inched up just +3.3% per year -- less than half the gain of the S&P 500."
However, he now believes that these problems are in the past, and states, "The company is emerging from its slump in much leaner shape -- having divested some $4 billion worth of non-core assets over the past year."
In the meantime, he consider the stock one of the most attractively priced companies in the media group, noting "Regardless of economic cycles, entertainment is always in demand."
He concludes, "Whether it's buying a movie, reading a magazine, surfing the web, or visiting the local multiplex, Time Warner will be there. This blue-chip stock is poised to deliver market-beating total returns going forward, and we want to be a part of it."
Each day, Steven Halpern's TheStockAdvisors.com features the latest investment ideas and market commentary from the financial newsletter community.
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