There has been a shakeout in the media sector in 2015. The media stocks have been investor darlings over the last few years but finally the valuations across the sector are attractive and reflect the risks in the industry related to disruption due to streaming, chord-cutting and shift in TV advertising.
Top ideas include Buy DIS @ $90, TWX @ $70, FOX @ 25, DISCA @ $24, LGF @ $32.
BRK-B (Berkshire Hathaway Inc.) recommended Buy @ $125 to $132 in Aug to Nov 2015. BRK is cheap on a sum of the parts basis. Market is focused on the under-performing stock portfolio with IBM, AXP, KO, WMT facing challenges.Although Insurance is in a down cycle many of the businesses in the housing and manufacturing industries, BNSF Railway and BH Energy have great growth prospects. Also Banking (WFC, BAC, USB), Insurance are poised to grow profit once interest rates rise and investments in partnership with 3G Capital (KHC, QSR) in slow evolving industries have good prospects.
Warren Buffett's capital allocation track record from 2011 to 2015 has been not that great. Investment in IBM where he strayed from his circle of competence, TSCDY, WMT inspite of prior bad experience in Retail, buying and selling XOM and the high multiple paid for PCP raise questions. Even though Heinz and KHC has done well his decision to sell Kraft before split in 2012 due to disagreements with management may have been a mistake. Investment track records of Todd Combs and Ted Weschler also have been a mixed bag. BNSF purchase in 2009/2010, BAC investment in 2011, purchase of Heinz and Kraft in partnership with 3G Capital, investment in WFC has been notable wins.
Although capital allocation has been mixed the strength of the Berkshire franchise is as strong as ever and BRK at @ 125-$132 which is likely 1.2 times 2016 end book value is a good risk-reward.
BAM (Brookfield Asset Management) recommended Buy @ $31.00 in Nov 2015. Market is valuing BAM only based on current Management Fee Income and discounting prospects of further growth in Fee Generating AUM which can double over next 7 years. Also market is discounting value of unrecognized carry, incentive income stream and Balance Sheet assets including BIP, BPY, BEP which all seem undervaued at this time.
BAM is well positioned for current downturn in Emerging Markets including Brazil and Commodity Industries and can quickly raise and deploy funds in infrastructure, property, power and other real asets. Also BAM plans to spin off BBP to create further avenues for growth.
Another option is to sell $35 Jan2017 Puts to lock in price below $30.
OAK (Oaktree Capital Group LLC) recommended Buy @ $48.75 on 20Nov2015. Market is valuing OAK only based on Management Fee Income and discounting prospects of further growth in Fee Generating AUM which can double over next 6 years. Also market is discounting value of unrecognized carry and Balance Sheet assets including 20% ownership in Double Line Capital and the incentive income stream. OAK is well positioned for upcoming downturn in Credit Cycle and can quickly raise and deploy distresed debt funds. Also OAK step put strategies are expanding into many areas presenting further avenues for growth.
Another option is to sell $50 Apr2016 Puts to lock in price below $46.
KKR (KKR & Co. LP) recommended Buy @ $17.50 on 20Nov2015. Market is valuing KKR only based on Management Fee Income and discounting prospects of further growth in Fee Generating AUM which can double over next 7 years. Also market is discounting value of Balance Sheet assets worth $12 per unit and the incentive income stream. KKR is well positioned for niche investments in Asia. Also opportunistic buybacks can enhance value.
Another option is to sell $20 Jan2017 Puts to lock in price below $15.