Two Favorite Media Plays

02/24/2016 8:00 am EST

Focus: STOCKS

Tony Daltorio

Editor, Investors Alley Premium Digest

Media stocks—once darlings of the market—have fallen out of favor due to changing viewing habits and disruptive technology, observes Tony Daltorio in Daily Profit.

Nevertheless, I'm particularly interested in two of the most-diversified media stocks.

The first is Time Warner (TWC). It raised its 2016 forecast above analyst estimates, pushed up its dividend by 15%, and announced a $5 billion stock buyback. Great news, right?

Nope. Time Warner said its lost subscribers at its Turner cable networks. Plus, its Warner Bros. film studio did not release a big hit in the past quarter. That combination was enough to send its stock spiraling down.

The big positive for Time Warner is HBO. Revenues there rose 6%. Its HBO offering lets viewers watch its programming without a pay-TV subscription. It now has over 800,000 subscribers.

Some activist shareholders are pushing Time Warner to spin-off HBO. They should keep it. It will make the whole company more attractive to outside bidders. Rupert Murdoch, who owns Fox, already made one run at Time Warner. I expect another one.

My favorite media company is Disney (DIS). It probably owns the best-known media brands in the world, each with countless merchandising opportunities.

Obviously, Star Wars: The Force Awakens was a mega-hit. Quarterly operating income at its movie studio surpassed $1 billion for the first time ever. And it has a number of blockbuster movies in its pipeline.

Disney's theme parks saw income rise 22% to $981 million. That figure should jump even more when Disney's theme park in Shanghai opens.

I think CEO Bob Iger is a pretty savvy CEO. With his emphasis on Disney pushing into new technologies, I expect it to stay the premier media company and its stock to resume its place as a Wall Street darling.

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