Stock Gumshoe

Just a quick note for those who didn’t notice: Two-time Gumshoe coveree Getty Images agreed to get bought out today. Yippee for the smart newsletter advisers who recommended this one, eh?

Not so fast — this is the new era of private equity, apparently, when even a 30% premium doesn’t necessarily mean they’re Read the rest of this entry »

Well, I referred obliquely to this one in my writeup of a few days ago, but thought I’d take a closer look and see if I was right in my assumptions.

Turns out, I was (for once, at least).

The undervalued stock of the month in April, according to the Half Priced Stocks service, was Getty Images, the big stock photography firm. It was teased as a dominant player in the digital photography market, poised to grow in strength as they acquire competitors and enjoy the benefits of a world awash in digital cameras.

The undervalued stock of the month in October, according to the same people, was again Getty Images (GYI). And again, the ad was pretty much word for word the same, at least in parts.

Now, I’m not against persistence — I do like to see advisers who stick by their ideas with some conviction. But it’s certainly starting to look like even if GYI is a bargain now, it certainly was not one, by most peoples’ assessment, back in April.

You see, the shares are right around $27 now. The last time they were called “undervalued,” they were right around $50. And no, the stock has not split.

So, is this a case of a decent stock getting beaten down, and an adviser taking his lumps and urging you to average down, confident that the shares will turn around? Or is it that the marketers saw that their recommendation got a good response rate in April and they recycled the same ad?

Personally, I certainly find Getty more compelling now than I did the last time I wrote about them in April. They are certainly cheap, at least on paper, right now — the PE is around 11, and analysts are projecting 10% earnings growth, so that’s reasonable (if they’re right). I think their new music licensing initiative is a little silly and off-focus, but they also just inked a deal with Interpublic and they certainly are busy putting photographers to work around the world for the major news and advertising publishers.

Certainly, folks who follow IBD and refuse to buy a stock on the decline, or to average down, would want to stay far away from this one. But that doesn’t mean it’s not worth a closer look … just that there’s some kind of reason out there why it has fallen 50% in a few months, and it might behoove you to figure out what that reason is … and whether your logic can overcome the market’s in this case. It looks like the main culprit for the fall was a minor shortfall in earnings announced in August, accompanied by a more severe cut in earnings expectations due to a competitive pricing environment and some charges for layoffs — so I guess we’ll learn a little bit more about how those reduced expectations are being met next week, they release earnings on November 1.

Oh, and to give them some credit — this group’s pick of the undervalued stock of the month in May was Broadcom at $31, which they said was 27% undervalued. If you took them at their word and sold when it got fully valued, over $40, you’d be quite happy now thanks to the huge runup earlier this month. Of course, if you hadn’t sold at that point you’d be sad, with the share price back down to just about a 10% gain at $34 thanks to this week’s disappointing earnings report.

Best of luck.

This is starting to be a trend — I’m now seeing the email from the Half Price Stocks guys every month about halfway through the month, touting their undervalued stock of the month. Previous ones were Broadcom and Getty Images, if memory serves … and today, another one arrives.

They call it a “Warren Buffet Value Stock” and say it’s 26% undervalued … so that sounds pretty tasty. Of course, they never mention whether Buffett actually owns it or not.

In their words …

“With a strong lineup of well-known brands, an enormous customer base, and nearly $8 billion in annual cash flows, this firm is one of the world’s most prominent media giants. However, due to market volatility, the shares have pulled back -76% from their all-time highs. As a result, bargain hunters now have a rare opportunity to pick up one of the world’s most dominant companies at a 26% discount below our estimated fair value.”

This company is a big media conglomerate, and “is either the #1 or #2 player in almost every conceivable media and publishing market — ranging from cable TV to Internet advertising to magazine publishing.”

They say that “the firm already controls the Internet’s top news site, top financial site, and top celebrity news site.” (some of that is debatable, but we’ll give it to them)

Finally, this company “owns some of the world’s most respected media brands, enjoys high operating margins of nearly 20%, is selling at a reasonable price/book ratio of just 1.4, and is now trading -76% below its all-time highs.”

Operating annual cash flow is $7.7 billion.

So that’s probably enough, right?

I agree. A few moments is all it takes for the Thinkotronic to churn through those numbers and tell us that this company must be …

Time Warner (TWX)

Boring, huh? Actually, this one has been getting a fair amount of attention from “value” analysts and touts lately, since the stock has treaded water for so long and may well be finally monetizing that AOL stuff to some degree.

The huge numbers mean there are very few companies that could match these clues — especially the cash flow numbers. Time Warner’s operating margins are 18%, which I guess is “nearly 20%” if you want it to be. The operating cash flows for the last twelve months were $7.65 billion, which is just a rounding away from the tease.

The company actually looks quite cheap now, as would befit a value stock, with a trailing PE of just about 13 or so … but analysts are forecasting declining earnings for next year (earnings did decline last quarter, so perhaps they’re right), so the forward PE is a more “average” 17.

For their top sites, I expect they must be talking about CNNMOney, the celebrity one could be either people.com or TMZ, I suppose … don’t know which of their many is the top news site, could be CNN. I’d argue with some of those, but I don’t have the traffic data so I’d really just be blowing smoke.

Anyway … a well known company, a decent share price … the undervalued stock of the month? That’s your call.