5 Picks From Smart Money Gurus

by: Investment Underground

Volatile markets have created interesting buy opportunities for value investors. According to GuruFocus.com, smart money gurus have gobbled up shares of the following companies recently:

Time Warner Inc (NYSE:TWX)

Time Warner Inc is a global leader in media and entertainment. The company consists of three segments: cable television networks, filmed entertainment and magazine publishing. After spinning off Time Warner Cable (TWC), the company has strictly focused on media and entertainment. Recent earnings have been strong and future earnings guidance was optimistic at the beginning of August. Shares are trading at 10.8 times forward earnings. Profit margins have been expanding a little since the spin-off of TWC; 9.2% over the last twelve months compared to the 4.4% five-year average.

Growth is starting to pick up as well. The success of recent release Hangover Part II gave the second quarter earnings a boost. Time Warner also offers investors a leg up over competitors by offering a dividend twice the industry average, 3.1% compared to 1.5%. Dividends have been growing at 23.2% over the last five years as well. Competitors New Corp. (NWS.A) and The Walt Disney Co. (NYSE:DIS) only offer dividend yields of 1.1% and 1.2% respectively. All three trade in the 10-11 range for forward price-to-earnings. Since all are valued similarly, Time Warner’s dividends probably make it the value investor’s choice in the media industry.

Sirius XM Radio Inc. (NASDAQ:SIRI)

After a decade of losing money, satellite radio provider Sirius XM is finally reaching scale. The first profit came in 2010, when the company earned $0.01 per share. The company has since expanded these profits, most recently posting $0.03 in per share earnings for the second quarter of 2011. While the numbers aren’t that impressive, it’s the scalability of Sirius XM that makes it attractive. Revenues have been growing at an average rate of 63.4% over the last five years. Now that the company has started to reach scale these increasing revenues should quickly turn into substantial revenue growth.

The stock has long been beaten down due to the time it has taken to reach its break-even point. There have always been concerns about the low switching costs of tuning into free entertainment offerings from terrestrial competitors like Cumulus Media (NASDAQ:CMLS) and Westwood One (NASDAQ:WWON). New competitors like Pandora Media (NYSE:P) are looking to enter the market for premium in-car programming. Interestingly, even with this steep competition, 46% of Sirius XM customer re-up subscription services at expiration. That is a pretty strong vote of confidence for the product Sirius XM is selling. As long as Sirius XM can keep getting new customers to try their services, the company will keep growing. Look for Sirius XM to have a strong year in 2012.

Qualcomm Inc (NASDAQ:QCOM)

Qualcomm is a world leader in the development and innovation of advanced wireless technologies, products and services. Currently trading a 17.3 times forward earnings, QCOM may be a little too hot right now for value investors. However, Qualcomm does have significant competitive advantages over competitors Broadcom Corp (BRCM) and Nokia Corporation (NYSE:NOK). Net profit margin for Qualcomm is 29.1%, while Broadcom and Nokia have profit margins of 13.5% and 3.5%. Qualcomm is trading at a lower valuation to forward earnings than both Broadcom and Nokia. Qualcomm looks strong, but value investors probably need it to fall a little out favor before buying.

Pfizer Inc. (NYSE:PFE)

Pfizer is a global pharmaceutical company that discovers, develops, manufactures and markets prescription medicines for humans and animals. Like many pharmaceutical companies, Pfizer is trading at a pretty low forward earnings multiple, 8.1 currently. The reasons for this is uncertainty about the health care industry as whole based on the new health bill, expiring blockbusters and mediocre pipelines. Competitors Merck & Co. (NYSE:MRK) and Novartis (NYSE:NVS) are trading at low multiples too; 8.6 and 10.1 times forward earnings. Growth prospects are weak for Pfizer as analysts estimate only 3.7% growth over the next five years.

These companies live and die by innovation. The good news is Pfizer has been great innovator for a long time now. Value investors need to decide if Pfizer is cheap enough to warrant a position. The 4.4% dividend yield makes the company attractive, however dividends have been contracting 1.1% a year over the last five years. Not exactly what value investors are looking for. Value investors should avoid Pfizer. There are less risky options available.

Merck & Co. Inc (MRK)

Like Pfizer, Merck & Co is a global research-driven pharmaceutical company. Merck discovers, develops, manufactures and markets products for human and animal health. The company is currently trading at 8.6 times forward earnings. Analysts expect slight better growth from Merck than Pfizer over the next five years, 4.5% versus 3.7%. This doesn’t stack up well against competitors like GlaxoSmithKline (NYSE:GSK), which analysts believe will grow 16.8% a year over the next five years. Merck does offer a nice 4.8% dividend, which has stood firm over the last five years through the Great Recession. With shares down 10% since the beginning of the year, Merck is an intriguing play for value investors. The strong dividend and beaten up shares make Merck a good pick for a value investors looking to enter the uncertain pharmaceutical market.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.