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Chris Katje is an investor from Grand Rapids, Michigan who also writes for The Street ( Chris is the owner of Stocks Under $20 through the Marketfy website. ( subscription service... More
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  • Discovery Drop Provides Great Entry Point

    The Discovery Channel is a household name in the United States. Many investors would not be surprised to learn that the Discovery Channel is also available in international territories as well. Investors may be surprised to know that Discovery Communications (NASDAQ:DISCA) is the most widely distributed cable company in the world with multiple channels in key territories around the world. It continues to be that international growth and the company's valuable television real estate that makes Discovery Communications a worthy investment. With the recent pullback in shares, investors should be ready to jump in.

    The third quarter saw revenue increase 14%, led by a 32% in the international segment. International advertising revenue grew 12% and was one of the keys to the strong quarter. The company bought back $298 million worth of shares in the third quarter, bringing the year to date total past the $1 billion mark. The strong international growth continued from the second quarter. My last article pointed out that international revenue grew 51% in the second quarter, compared to the 7% increase in the United States segment.

    At the end of the third quarter, Discovery Communications had an average of eight channels in the 225 countries it operated in. In total, Discovery Communications has more than 3 billion cumulative subscribers around the world. The company's namesake Discovery Channel is available in more than 500 million homes around the world. TLC, a key part of the Discovery portfolio, is the world's leading female targeted channel with availability in 300 million homes in more than 200 countries. In Brazil, Discovery Kids is the number one pay television channel.

    Latin America continues to be a strong point for Discovery Communications. Discovery Kids is number one in Brazil, which continues to be one of the biggest growth markets for television in the world. This number one position includes all cable channels, not just those targeting kids. The company now has 13 brands in the 49 Latin American countries it operates in. Ratings are up 20% in Latin America. The strong growth has helped Discovery earn double digit increases in affiliate and advertising revenue.

    Along with strong international growth, Discovery is also seeing growth of its lesser known channels. Investigation Discovery is one of the world's fastest growing channels in the world. The channel recently launched in India and Norway and is well on the way of a goal of 100 million global homes. The Oprah Winfrey Network, a 50% owned joint venture, continued its strong growth. The channel is the number one rated channel for Tuesday, Wednesday, and Saturday nights among African American women. American Heroes Channel saw a 16% increase in viewership in the quarter. Destination America and Velocity also saw double digit increases in viewership.

    Discovery's leading channels also had good third quarters. Discovery Channel saw a 10% increase in October viewership, led by the show "Gold Rush", the number one rated show among men on Friday nights. Discovery also aired the special "Skyscraper Live" in the current fourth quarter featuring Nik Wallenda walking on a tightrope blindfolded. The strong ratings of this event and the likely high priced ads should help boost the Discovery Channel in the current quarter. Also helping Discovery Channel going forward is the appointment of former Disney executive Rich Ross to be the channel's new president and help boost the channel into even more international territories and expand content.

    TLC continues to dominate the ratings for women on cable networks. Also helping the channel is one of the channel's most popular shows "19 Kids and Counting". Two weddings of Duggar children has helped boost the ratings for the channel this season. The first wedding helped TLC have its highest audience in four years and made TLC the number one network for the night.

    Discovery Communications forecasted full year revenue to hit a range of $6.30 to $6.35 billion, with weak foreign exchange ratings hurting worth than previously expected. Yahoo Finance lists an estimate of $6.3 billion for fiscal year revenue and earnings per share of $1.72. Going forward, fiscal 2015 has targets of $2.09 in earnings per share and $7.0 billion in revenue on Yahoo. That earnings target would give shares a price to earnings of almost 16. I think shares could easily trade back in a range of 20 times forward earnings, sending shares back above $40.

    Shares of Discovery Communications ended Wednesday trading for less than $33.00. Over the last 52 weeks, shares have traded in a range of $31.29 to $46.38. As you can see, shares are trading very close to 52 week lows. After seeing a rise of 38% in 2013, shares of Discovery are down 28% in 2014. This media company has the content and distribution assets to continue to be a strong player. International growth and continued expansion should boost shares back to higher levels going forward.

    Tags: DISCA
    Nov 26 2:37 AM | Link | Comment!
  • Stocks Under $20 Scores With Dreamworks Animation Buyout Buzz

    Earlier this week, the Stocks Under $20 portfolio made its first sale. The portfolio sold its entire stake in Dreamworks Animation (NASDAQ:DWA), as shares hit past the $25 level. If you have followed the portfolio or read the background, all positions are exited when they hit $25 a share. In this case, shares were higher than that level due to buyout buzz.

    Softbank, one of the largest companies in Japan, was rumored to be buying shares of Dreamworks Animation at the $32 level. The deal would have given Softbank access to the U.S. market and a huge portfolio of movie characters that it could use and integrate into its company.

    Softbank is best known in the United States after purchasing an 80% stake in Sprint. Softbank made headlines recently with its stake in Alibaba (NYSE:BABA) finally monetized. The company received $4.6 billion in proceeds from the IPO and still holds a 32% stake worth $71 billion.

    The deal for Dreamworks Animation makes sense for Softbank as its leadership in mobile games could benefit from the plethora of characters coming in. Softbank is the world's top grossing publisher of mobile games.

    Also Dreamworks expansion in Asia via its Oriental Dreamworks platform is bringing live action, television series, and theme parks to the Chinese market. This close proximity for Softbank could be a huge boost for the company.

    On news of the buyout buzz, shares of Dreamworks Animation traded as high as $28.18. Shares were trading down on Tuesday as buzz has dropped and reports that Softbank may be walking away surface. Despite the buyout rumors of $32 a share, the company still trades below that level and well below its 52 week high of $36.01.

    My blog post on Dreamworks Animation and its subsequent addition to the portfolio centered on the company having strong growth in consumer products and being a mini-Disney. After reporting a weak second quarter report, shares fell low enough to enter the criteria to be added to the portfolio.

    I also highlighted the strength in the television segment and the future growth ahead. Dreamworks Animation is ready to add three new shows in the second half of the year. In 2015, Dreamworks will have seven new shows and will see around $250 million in television revenue, with margins of around 30%.

    The stock was held for just under 60 days. In that short time, the trade returned 33.8%. Shares were bought at $19.52 for the portfolio. That price of $19.52 was close to the 52 week low of $19.20 shares had seen. I called the bottom and told investors this was a rare opportunity to add the media gem to portfolios under $20.

    Dreamworks Animation shares are out of the portfolio and its likely shares won't drop below $20 anytime soon so they can be added back in. Have no fear though as I have found another great media company that is going unnoticed by large investors and analysts. The company is set to see explosive growth with several catalysts that capitalize on the biggest growth areas in the movie market. To find out this pick and get other great stocks under $20, be sure to subscribe to the portfolio and get full access.

    Thanks and happy investing.

    Tags: DWA
    Sep 30 10:56 PM | Link | Comment!
  • On Track Innovations Has Further To Run

    On Track Innovations (NASDAQ:OTIV) has been one of my favorite stocks over the last three months. The company has a leading position in NFC technology, something Apple made more relevant and investors will hear more about in the next several years. Stocks Under $20 members got an early jump on this public article as I first bought shares for the model portfolio at $2.63. Shares continue to see large 5-10% movements on a daily basis, but I believe eventually shares will start to see less fluctuation and trend slowly higher once again.

    On Tuesday, shares of On Track traded up 13% before ending the day with a 5% gain. The company announced a launch of a mobile electronics payment trial with a large financial institution in North America. The partnership with ABNote combines the company's WAVE device with ABNote's mobile wallet. The WAVE uses an audio jack to add NFC capability to smartphones or tablets. Essentially a key like device can be kept on a keychain and then waved in front of devices to pay for items.

    From the press release ABNote had this to say, "WAVE device, unlike many of the alternative solutions available today, requires no commercial relationship with either the handset manufacturer or the mobile network operator, the WAVE cannot only be initialized on hundreds of millions of existing mobile handsets and used on a stand-alone basis across many platforms and markets, but can be delivered at costs far more economical than prevailing NFC models."

    The deal with ABNote also helps expand international deals, as ABNote is strong in North America, Europe, Africa, and Australasia. ABNote is a leader in creating cards for banks, identification, transit, hotel, theme park, membership, and also makes gift cards and passports.

    In its recent quarterly report, On Track hinted at several pilot programs with financial institutions. Of course, the company already has a deal with a leading financial firm in Hong Kong that recently started seeing devices delivered.

    For more on On Track Innovations other areas of growth like parking and a lawsuit with T-Mobile, see my Seeking Alpha article.

    Keep in mind that On Track sees heavy swings. On news of Apple's iPhone 6 having NFC technology, shares of OTIV traded as high as $5, or nearly double the price of today's shares. Of course readers of the portfolio could have sold shares that day for a 100% profit or taken half of their shares off the table and let the rest ride.

    I continue to hold shares of On Track Innovations in the Stocks Under $20 portfolio and in my own personal portfolio.

    Tags: OTIV
    Sep 25 1:14 AM | Link | Comment!
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