Murray Stahl is Horizon Kinetics LLC Chief Investment Officer, Treasurer, and Chairman of the Investment Committee. Stahl is also Kinetics Asset Management LLC's Co-Founder, Chief Investment Officer and Chairman. I think it is interesting to evaluate Stahl's holdings to produce seed investment ideas for future research. I think that if a stock is a top holding from a prominent portfolio manager like Stahl, the firm must have passed strict research measures, so my confidence level to invest goes higher. I used whalewisdom.com to check his holdings.
Liberty Media Corporation (LMCA)
Liberty Media Corporation has interests in a wide range of businesses, such as media, communications and entertainment. It provides its services principally in the North American region. The firm is working at theatrical film production and distribution, home video distribution, television production and distribution, and theatrical and nontheatrical animation businesses by means of its ownership of interest in subsidiaries and other companies. Besides, the firm holds majority interest in SIRIUS XM Radio Inc. (SIRI), Live Nation (LYV), and Barnes & Noble Inc. (BKS) and has minority interest in Time Warner Inc (TWX). and Viacom Inc (VIA).
Liberty Media has quit its strategy to purchase a controlling stake in Barnes & Noble Inc and instead, it invested $204 million to acquire preferred stock of Barnes & Noble, which can be turned into 12 million shares of BKS. These preferred shares will produce an annual dividend of 7.75%. Barnes & Noble, the biggest bookseller in the world, currently runs 705 general bookstores and 636 college bookstores all over the U.S. Most significantly, Barnes & Noble has a broad digital business, which increased by a substantial 60% in the previous quarter. This growth contrasts with a decrease in the number of print books sold. In 2009, Barnes & Noble designed a powerful e-book reader called the Nook, becoming a digital bookseller. Nook commands about 25% of the worldwide e-book market and it is now the second biggest e-book reader after the Kindle of Amazon.com.
I believe the choice to invest in Barnes & Noble will be positive for Liberty Media in four ways:
- the new deal will preserve a great amount of cash (about $1.02 billion) for the firm
- will reinforce the firm's top line growth supported by BKS preferred dividend
- the firm will get two positions in Barnes & Noble's Board of Directors as the convertible preferred stocks will effectively give 16.6% controlling stake to Liberty Media
- the firm may boost its stake in the future if the e-book reader business prospers in the long run.
In the last earnings release, Liberty Media's Q1 revenue decreased 55% to $440 mln vs. the $482 mln consensus, adjusted OIBDA decreased 77% to $110 million and operating income decreased 81% to $89 mln. The decrease in revenue, adjusted OIBDA and operating income was a direct result of a significant recognition of deferred revenue and costs in the previous year at our subsidiary TruePosition. The Company repurchased $120 million of Liberty Media stock from February 1 through April 30, 2012. Management explained:
Starz again posted impressive subscriber gains and accelerated its slate of STARZ Original content with the debut of its new series, Magic City. We are very pleased that Microsoft announced an investment in Barnes & Noble's digital and college businesses. This is validation of their strategy and provides a strong partner to help grow the eBook business both domestically and internationally on multiple platforms. We also entered into a forward purchase contract covering 302 mln shares of SiriusXM, which is scheduled to close early in the third quarter. These shares will increase Liberty's ownership to 45.2% on an as-converted basis.
Considering Valuation, Liberty Media is at present trading at 45.8x average analyst fiscal 2012 gains estimate. This is at an enormous premium to the industry average as well as the S&P 500 (SPY). Regarding the average fiscal 2013 earnings calculation, the stock is trading at 35.2x, again an enormous premium to the S&P 500 as well as the industry average. I believe Starz Group's important brand value and continuous stock repurchase program will back the stock price in the near term.
Air Lease (AL)
Air Lease Corporation , aircraft leasing company mainly engaged in acquiring commercial aircraft and leasing to airlines around the world, provides leasing services in Asia, the Pacific Rim, Latin America, the Middle East and Eastern Europe. The company is located in Los Angeles, California.
Recently, AL reported quarterly results. The Company reported Q1 (March) earnings of $0.26 per share $0.02 lower than Capital IQ Consensus Estimate of $0.28; revenues rose 140.2% year/year to $132.6 mln vs the $133.05 mln consensus. Management highlighted:
ALC saw demand holding up for new aircraft lease placements in the 2013 - 2015 delivery time frame, particularly in Asia. Global passenger traffic continued to grow, which partially offset the higher fuel costs that drove lower airline financial performance during the first quarter. Our forward lease placements have been balanced across airlines with strong credit quality and competitive operating strategies. During Q1 we executed our growth plan by taking delivery of 12 aircraft from our pipeline, finishing the quarter with 114 aircraft spread across a diverse customer base of 59 airlines based in 34 countries. ALC's overall portfolio maintained consistent lease yields and once again delivered a pre-tax operating margin exceeding 30%.
FBR Capital gave an Outperform rating of AL shares. FBR Capital noted that while reported EPS missed the forecast, it views the company financing activity as a long-term positive despite the near-term drag on earnings. Additionally, management noted increasing opportunities to acquire aircraft, in addition to its existing OEM orderbook. FBR cut FY12 EPS below consensus to reflect the 1Q12 EPS miss, as well as higher projected interest expense but they raised FY13 EPS further above consensus to reflect the increased projected fleet size. Overall, FBR is bullish in the future of AL.
In terms of Valuation Ratios, AL is trading at a Price/Book of 1.1x, a Price/Sales of 6.6x and a Price/Cash Flow of 8.3x in comparison with its Industry Averages of 2.2x Book, 0.9x Sales and 3.7x Cash Flow. It is essential to analyze the current valuation of AL and check how is trading in relation to its peer group.
DISH Network Corp (DISH)
DISH Network Corporation is a company based in Englewood, Colorado, that together with its subsidiaries runs the DISH Network direct broadcast satellite subscription television service in the U.S. with 14.337 million subscribers.
DISH Network works through three reportable segments: Subscriber Related Revenue (99%), Equipment Sales & Other Revenue and Equipment Sales.
Management is very positive about the firm's new marketing drive to promote DISH Network as well as Blockbuster. As regards the deal, new as well as existing DISH Network customers will be offered free Blockbuster Movie Pass, in which one can enjoy DVD and video games by mail as well as streaming thousands of movies and TV shows, for a two-year subscription period. Pursuant to management, the new strategy has already started to deliver great dividends for DISH Network and it remains bullish on better subscriber increase in the upcoming quarters. At the fourth quarter, DISH Network acquired 22,000 net subscribers in comparison with an enormous loss of 156,000 subscribers in the year-ago quarter. At the end of 2011, DISH Network had about 13.967 million subscribers.
I believe management is trying hard to develop DISH Network as reserve for spectrums that can be used to increase a viable pay-TV distribution network. The recently purchased spectrums from TerreStar Networks Inc. and DBSD North America Inc. provide most relevant assets of the wireless industry. By using these slots of airwaves, the firm can form a formidable video-on-demand service over a wireless network of mobile handsets, like smartphones and tablets or can monetize these airwaves with important financial profit.
I paid attention to a RBC research report that is bullish on cable stocks. RBC continues to prefer cable stocks over telecommunications companies based on stronger relative operating fundamentals. Preferred stocks to own remain Time Warner Cable as it believes it has more upside from up selling additional services into its customer base and a relatively low share of commercial services revenue. Among the DBS providers, it continues to recommend Dish as it believes the company is a likely M&A target.
In the recent quarterly earnings release, DISH Reported Q1 earnings of $0.80 per share, 0.09 cents better than the Capital IQ Consensus Estimate of $0.71; revenue rose 11.1% year/year to $3.58 bln vs the $3.61 bln consensus. I think the DISH strong results will create a floor in the low 30s for the stock in the next 3 months.
Taking into account Valuation, DISH Network is at present trading at 11.4x fiscal 2012 analyst estimate, which is at an enormous discount to both the S&P 500 average and the industry average. Regarding the fiscal 2013 average earnings projections, the stock is trading at 10.6x, again a big discount to both the S&P 500 average and the industry average. Management's decision for marketing promotions to increase its subscriber base as well as increasing investment in technologically advanced equipments may sustain its upcoming growth.
Google, Inc. provides target-based advertisements on the web. Products and services include providing web-based information through its own and hosted (network) websites, with the help of software and Internet tools on both computing and mobile platforms.
Advertisements are served alongside search results, using Google's AdWords, AdSense, DoubleClick and YouTube tools, with the firm's page ranking and text-matching technology and infrastructure speeding up the process.
One point that is very strong about Google's story is Android growth and market share. In the last comScore March 2012 U.S. mobile subscriber market share report it showed that Google Android continued to grow its share in the U.S. smartphone market, accounting for 51 percent of smartphone subscribers, while Apple (AAPL) captured more than 30 percent. Device manufacturer Samsung ranked as the top OEM with 26.0 percent of U.S. mobile subscribers (up 0.7 percentage points), followed by LG with 19.3 percent share. Apple continued to gain share in the OEM market, ranking third with 14.0 percent of mobile subscribers (up 1.6 percentage points), followed by Motorola (MMI) with 12.8 percent and HTC with 6.0 percent. Android will represent huge growth for Google in the mobile area.
Another area that continues to boost very powerfully is video. Google provides video ads over the YouTube platform, where viewers continue to grow quickly. Management has announced that usage and traffic are still very solid and I expect steady growth in the area going forward.
Video ads on Google.com are presently restricted to entertainment, movies and product demonstrations. The firm intends to expand the reach of video ads on Google.com to cover other areas as well. With 50% of new recruitment in engineering and another chunk in sales, management evidently wants to build upon its success in video, mobile, display and search.
Whereas the shares have historically traded at an important discount to peers, the forward P/E symbolized a 59% discount, which is much higher than the average discount of 36% over the last five years. So I think that there could be upside from these levels, but, of course, much will depend on whether Google is able to deliver on its growth plans, since its expected growth rate of 19.0% remains below the 22.2% average growth rate estimated of the peer group over the next five years.
In the last earnings report GOOG went down almost 4% but some research analysts were bullish on future prospects. For example, Oppenheimer noted that Google reported 1Q results that were generally in line with expectations, with no material change in management comments. EPS modestly exceeded Street expectations on margins and lower tax rate. Issues impacting 1Q, including quality improvements and mobile mix, are expected to continue into 2Q. The analyst raised the target to $733 on an increase in S&P 500 valuation since last update, as its estimates are largely unchanged, and assuming positive trends.
Needham noted that Google's 1Q12 revenue was in line with expectations while pro forma EPS was above expectations. Net search revenue was modestly ahead of its expectations with strong query volume and paid clicks offsetting declining cost-per-click (CPC) rates. Google's Display business continues to increase rapidly, but Needham believes the steep growth trajectory has slowed slightly. However, it believes that Google's mobile business remains robust with Android activations still increasing triple digits. While still early, analyst believes Google+ should become a second skin for Google but the impact of the social layer remains limited to date.