Matthew Kerkhoff, options expert and editor of Dow Theory Letters, continues his 14-part educational...
Dessauer: Give Me Liberty
01/23/2004 12:00 am EST
"We are in an economic 'sweet spot' that will produce higher profits all through 2004 and into 2005," says John Dessauer. " The most important advice I can give you is to stay focused on fundamentals and stay fully invested." His latest play is a bet on John Malone's Liberty Media.
"A new recommendation of mine is Liberty Media ‘A’ (L NYSE). Chairman John Malone is a media visionary. Over the last several years, Malone has created a media empire, with assets and operations covering a wide swath of the globe in the entertainment business. In the process, he leveraged the balance sheet and turned Liberty into more of a holding company than an operating company. The stock’s high was $31 in 2000, but it has come down along with the market.
"Lately, the stock came under pressure because of changes at its Starz Encore Group. Starz has a new contract with Comcast, whereby Starz now will be paid per subscriber rather than a flat fee. Part of the deal includes Comcast selling 85 million (out of 218 million) Liberty ‘A’ shares. The stock sale was at $10.75, and Liberty bought about 25 million of the shares in a stock buyback. A debt reduction program has been announced. Liberty’s target is to eliminate $4.5 billion out of $11 billion in debt over the next couple of years. Comcast is also in a debt reduction mode and may consider further share sales, especially if Liberty stock moves higher. The Comcast stock overhang and rising costs at Starz open a window of opportunity for us to buy Liberty ‘A’ shares.
"Liberty’s other businesses—the Discovery Channel, QVC, video programming, and Internet businesses in Europe, South America, and Asia—are all on a growth path. Plus, Liberty owns stock in various publicly traded companies, such as News Corp., Time Warner, and USA Interactive. Liberty is a treasure chest of media assets, valued at $15 to $17 per share. I am buying Liberty now because of the huge discount to real market value of the assets, and because I expect significant long-term gains as the company shifts from holding assets to operating businesses. Over the next two years, I expect the value of Liberty’s assets to rise, and earnings and cash flows to improve significantly. Liberty can double for us in two years or less."