John Reese, editor of Validea, selects stocks for his portfolio based on the long-standing strategies of some of the market's most legendary investors. For his more conservative idea for 2019, he looks to a TV broadcasting firm.

AMC Networks (AMCX) is the broadcast entertainment company that brought us The Walking Dead and Breaking Bad. It also owns and operates WEtv and BBC America.

AMC Networks has a market cap of $3.1 billion dollars and I would describe the investment as a mid-cap play that isn’t necessarily conservative, but which should be a lot less volatile than a small-cap stock.

The company scores high on my Joel Greenblatt model, which uses a simple quantitative approach to finding stocks. Greenblatt’s simple “magic formula” was outlined in the 2005 bestseller, The Little Book That Beats The Market, and focuses on a firm’s return on capital and earnings yield.

In the case of AMC Networks, those numbers are 39.8% and 14.2%, respectively.  To put some perspective on that, the S&P 500 currently provides an earnings yield of right around 5.1%.

In the latest reported quarter, AMC Networks beat earnings expectations even though it has seen a number of downward revisions lately. Nevertheless, with the stock trading almost 22% off of its 52-week high there could be plenty of upside potential in the shares.

The Greenblatt model we use adheres to one of his (again) simple constructs. That is that companies with high returns on capital likely are in that position because they have some special advantage over their competition. That’s what makes AMC Networks look attractive going into 2019.

Subscribe to John Reese's Validea here…