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      « October 2005 | Main | December 2005 »

      November 30, 2005

      The Case For Comcast

      Comcast Corp. is the largest cable operator in the US. Its shares have been down this year, and fell further after reporting “disappointing” 3rd quarter results. (In the “for what it’s worth” department, the company had beaten Wall Street’s expectations the previous 3 quarters.)

      I stated in my last post that I purchased Comcast’s Class A Special stock (CMCSK/NASDAQ) on Monday (11/28), which closed that day at $26.73 a share. The 52-week high of $34.16 was reached on March 30 of this year and the 52-week low hit $25.57 earlier this month. The market capitalization is approximately $59.5 billion and the company trades at about 1.45 times book. There is no dividend.

      Why Comcast is down

      Like other cable companies, Comcast faces several risks. Investors have emphasized these risks when evaluating the company, and the share price has suffered as a result.

      For starters, Comcast is losing basic cable subscribers while facing increased competition from telecommunications outfits like Verizon and SBC (soon to be renamed AT&T) as well as satellite companies (such as DirecTV Group, which I also own).

      Comcast faces potentially higher programming costs. These are already the company’s largest single expense, and no matter how much it focuses on holding down costs, “must-have” content providers such as ESPN clearly possess negotiation advantages.

      Comcast is also yet another family-controlled media company. CEO Brian Roberts, son of Chairman and Founder Ralph Roberts, controls 33% of the voting shares. The fact is that the Adelphia scandal has made family ownership a risk in and out itself for many investors.

      And Comcast faces the constant threat of increased government regulation at all levels -- federal, state and local.

      Finally, there is always the potential of new technologies being developed and disrupting the company’s business model.

      What Comcast has going for it

      Because of the above, Comcast stock is down. I believe that’s temporary and investors with a 3-5 year time horizon will be rewarded when buying the stock at current levels.
      Even though the company is losing basic cable subscribers, its future is as a multi-system operator. Comcast lost 46,000 basic cable subscribers in the 3rd quarter (leaving it with 21.4 million) but added 437,000 high-speed data subscribers. In fact, its high-speed internet service exceeded $1 billion in the 3rd quarter. At 20% market penetration, this line of business has significant growth potential.

      The company is also adding digital phone customers, though not as fast as Wall Street would like, gaining 12,000 in the quarter. It reaffirmed its target of 200,000 to 250,000 net additional digital phone subscribers by the end of 2005.

      This brings up Comcast’s “disappointing” 3rd quarter results. The company reported a profit of $222 million, or 10 cents a share, roughly the same as the year before.

      And revenue rose to $5.6 billion, matching or slightly exceeding what many analysts estimated, while cash flow climbed about 13% to $2.1 billion.

      But higher programming costs stemming from its deal to televise National Hockey League games have caused Comcast to cut growth expectations for 2005. The company now expects 2005 cash flow growth of 13%, down from the previous range of 14% to 15%. And stronger demand for costlier set-up boxes is leading to higher capital expenditures -- up to $3.5 billion from the previous target of $3.2 billion to $3.3 billion.

      So the company’s “disappointing” 3rd results were due to increased capital expenditures in 2005. I think there’s a good chance for Comcast to achieve substantial return over its cost of capital in 2006 and beyond.

      In fact, CEO Brian Roberts runs this family-controlled company in the best interests of shareholders. He recently quipped that Comcast’s shares could be picked up at “going out of business sale” prices in the stock market. And he’s backing up his words with action: Comcast has been steadily repurchasing its shares and bought back about $752 million worth of its stock in the 3rd quarter alone.

      Along with making strategic capital expenditures and aggressively buying back stock, Comcast targets growth through acquisitions. Examples include purchasing the cable and broadband operations of privately held Susquehanna Communications and acquiring (along with Time Warner) the assets bankrupt Adelphia earlier this year.

      Bottom Line: Comcast is down largely as the result of a decade-long lull for cable operators. Yet the company has excellent management, is growing revenues and cash flow, and is experiencing strong demand for its menu of digital cable services. There are risks but I find Comcast attractive at current prices.

      Note: I always encourage readers to do their own due diligence before buying something I’ve bought. That’s especially true here because there’s a lot more I haven’t touched on. Such as HDTV and video-on-demand (VOD), Comcast’s deals with CBS and Radio Shack, and the fact that a certain gentleman in Omaha has been purchasing more Comcast stock. So please read up on this company before buying.

      Class A Special Stock: As stated above, I purchased Comcast’s Class A Special stock (symbol: CMCSK). They trade at a slight discount to the company’s Class A stock (symbol: CMCSA). The reason is that the Class A stock has voting rights while the Class A Special stock generally has no voting rights.

      UPDATE 9/30/06: I reduced this holding by 25% on Friday (9/29/06). I sold at $36.42 and the Special Class A shares closed the day at $36.81.

      November 28, 2005

      Buying Comcast

      Comcast Corp. stock was bought Monday. Specifically, I purchased the Class A Special (CMCSK/NASDAQ) shares that closed at $26.73.

      Unfortunately, I'm swamped with non-blogging duties and won't be able to post my rationale for owning the company before the market opens on Tuesday. But my hunch is that most readers of this site are at least generally aware of the fact that the cable sector has been down. And I wanted to share the name of the company bought and the closing price, so anyone wishing to do so can perform their own due diligence.

      My apologies for any incovenience not being able to post more at this time causes.

      New Order Placed

      A new order has been placed to buy shares in a company in the broadcasting and cable industry. This will be a new position in the portfolio.

      If the order get filled, I'll post my rationale for buying later today, this evening, or first thing tomorrow morning before the markt opens.

      November 26, 2005

      GM Selling More Cars Abroad Than In US; Future Depends On North American Turnaround

      I've written here previously that General Motors' (GM/NYSE) International operations were a largely unreported story concerning the company. Everyone knows that GMAC is GM's most valuable asset, but the auto maker's lousy performance in North America has diverted attention from its foreign business.

      Now comes this Detroit Free Press interview with Chairman and CEO Rick Wagoner:

      "Wagoner said he was surprised recently to learn from GM marketing analyst Paul Ballew that GM likely will sell 4.5 million vehicles in the United States and 4.6 million abroad this year.

      "'That's a trend that's going to make the company look very different,' Wagoner said. In 2004, GM sold 4.7 million cars and trucks in its home market and 4.3 million in other countries. In 2003, GM sold 20% more vehicles at home than abroad.

      "Until seven or eight years ago, GM had virtually no presence in Asia."

      Still, Wagoner emphasizes:

      "'Our fate is going to be determined in the next three to five years on getting this business in the U.S. turned around and profitable,' he said Wednesday during an hour-long interview in his 39th-floor office at GM's Renaissance Center headquarters.

      "'That's what's going to decide how good GM is going to be. And then I think, over time, it's going to be how well we use our global resources to take advantage of where there's growth,' he said, two days after announcing plans to cut 30,000 jobs and halt production at 10 U.S. plants."

      I continue to believe that GM won't go bankrupt. And I continue to believe that holders of GM shares at these prices (and in the low $30s) will see excellent appreciation over the next few years.

      Yet I could always be wrong, so please do your own due diligence before buying the stock.

      November 25, 2005

      Lazy Friday

      I hope all American readers of this blog had a great Thanksgiving and are in a position to enjoy a nice, long, relaxing weekend.

      But if you're having to work today, I feel your pain. Or I should say I've felt your pain -- because I've worked more Fridays after Thanksgiving than I care to remember.

      I was thinking of placing a new order this morning, but haven't because there's more research material on the company to read through and ponder. So any new buying will be done Monday at the earliest.

      November 24, 2005

      Happy Thanksgiving

      Today is Thanksgiving Day here in the US. It commemorates the the feast held at Plymouth in 1621 by the Pilgrim colonists and members of the Wampanoag people and marked by the giving of thanks to God for harvest and health.

      That was in Massachusetts. Folks down here in Virginia claim the first Thanksgiving happened in our state -- a full year and 17 days before the Pilgrims even landed on the North American continent.

      Before I start anything, I'll change the subject (slightly) by pointing out that our Canadian friends celebrate their own Thanksgiving in October as a giving of thanks to God for harvest and health.

      The markets are closed in the US today and will be open tomorrow until 1:00 p.m. Eastern Time. But the rest of the world will still be doing business. I'll post if anything interesting happens.

      I may even place a new order to buy first thing Friday morning. So stay tuned.

      In the meantime, here's wishing everyone everywhere a Happy Thanksgiving.

      Klarman Sees "An Avalanche Of Opportunity"

      The first Value Investing Congress has certainly received its fair share of coverage. Or at least it seems that way from my scanning of the financial press.

      Yet another article is this one (registration may be required) by Herb Greenberg of MarketWatch on Seth Klarman's remarks. You've doubtless noticed other posts on this site on the congress, and even on Klarman's comments, but Greenberg's piece still caught my attention.

      Perhaps that's because Klarman usually maintains a low profile and any article sharing his thoughts is worthwhile.

      Even if several come quickly and cover the same event!

      About Klarman holding so much cash (more than 40%) and waiting for the right pitch, Greenberg reports:

      "'Candidly,' Klarman says, 'I think the world is setting itself up for an avalanche of opportunity. Everyone is highly invested' but 'artificially low interest rates' combined with record-high junk bond offerings 'put off the day of financial reckoning.'"

      We'll see. I recall Klarman giving an interview in the early 1990s and being very pessimistic about the returns equity investors would achieve for the decade. His forecast wasn't accurate, but please don't think I'm being critical of him (his long-term track record is top-notch). I simply think Klarman and other value players (Buffett on down) excel in picking stocks -- not in making market forecasts.

      P.S. Klarman's excellent book, Margin of Safety, was written in 1991 and is now sadly out of print. If you don't want to spend hundreds of bucks buying it used, see if it's carried in your local library. Perhaps it will come out in an updated paperback edition one day soon.

      P.P.S. Speaking of books, Greenberg praises The Little Book That Beats The Market, near and dear to my heart as the first item advertised on a Blogad on Controlled Here's what he says:

      ". . . every year I'm asked for recommendations for investment books that would make good gifts. This year, make it Joel Greenblatt's, The Little Book that Beats the Market.

      "How often do you laugh out loud when reading a book about stocks? Answer: Almost never. Yet that's what I did when I flipped from cover-to-cover in substantially less than the two hours it took to fly from Denver to San Diego. That's how 'little' the book is. But Greenblatt, best known for his first best-seller, You Can be a Stock Market Genius, crams more readable and useful info into 156 pages than most investment authors do into twice that amount of space.

      "The book, which is as appropriate for novice investors as it is for pros, explains how Greenblatt's time-tested 'magic formula' of buying stocks of companies with low earnings yields and high returns on capital can make you money.

      "It also makes sense."

      November 23, 2005

      FT On The Value Investing Congress

      Here's a good overview article on the recent Value Investing Congress in the Financial Times.

      Entitled, "Value Investing: Updating The Magic Formula," the piece gives mention to, among others, the current paid Blogad advertiser on this site:

      "Joel Greenblatt, whose hedge fund Gotham Partners has returned a compounded 40 per cent a year over the last 10 years, presented a new book entitled The Little Book That Beats the Market. Written in a folksy style, it featured a 'magic formula' updating Ben Graham’s original idea to take account for the fact that fewer companies today are truly under-valued. He even has his own website ("

      There's other interesting stuff in the article as well. Such as many attendees finding value in Wal-Mart and Microsoft . . . Seth Klarman of the Baupost Group saying he was holding more than 40% in cash . . . and event organizer Whitney Tilson revealing his best value idea is none other than Berkshire Hathaway:

      ". . . Berkshire used to trade at a huge premium thanks to the market’s respect for Warren Buffett. By Mr Tilson’s calculations, it is now trading for far below its intrinsic value after this year’s hurricanes damaged sentiment towards insurance companies."

      I wasn't at the Value Investing Congress, but every report I've seen makes it sound like a great time.

      Positive Development For Individual Investors

      If you and I are right about a stock being undervalued, then by definition it could always find itself "in play."

      Even if we didn't buy thinking it was a "takeover candidate."

      And there was a time when large, activist investors would "raid" a company in a way that would enrich themselves -- but not necessarily all of the company's shareholders. Thankfully, as noted in today's "Heard On The Street" column (subscription required) in The Wall Street Journal, that is no longer the norm:

      "The leveraged-buyout craze in the late 1980s also targeted companies that were seen as undervalued, and raiders often piled on debt to make the deals work. Sometimes companies would -- in response to a takeover bid or the threat of an offer -- take on debt and pay out big dividends to shareholders. But today activists push for higher share prices for all investors in a company, not just for their own stakes."

      I bolded that last sentence for emphasis. It's a positive development that all individual investors should remember.

      The "Heard On The Street" column linked above focuses on hedge funds. I'd expand that to include a broader view of activist shareholders.

      Take MCI as an example. I've mentioned in several posts that I bought MCI before this site was launched. I paid $17 a share. Management tried to make a quick sale to Verizon at $20.

      Several large investors in MCI -- money management firms, mutual funds, private investors -- complained and were going to back a higher bid by Qwest. Verizon eventually did win MCI, but had to raise its offer to the mid-$20s.

      That wouldn't have happened without several large investors in MCI willing to vote down the initial deal. Their opposition served the interests of ALL shareholders (even "the little guy") as well as themselves.

      Random Thoughts On Thanksgiving Eve

      A few things to ponder on the day before Thanksgiving.

      General Motors Dividend
      With General Motors' (GM/NYSE) dividend now yielding more than 8%, several folks in the media and on Wall Street have speculated that it will be cut or eliminated.

      I'd hate for it to go away. Yet I could see (and grudgingly accept) having it cut or eliminated if doing so was crucial to the health of the company. Or if it was used as a bargaining chip in negotiations with the UAW. And, most of all, if either of these or both resulted in the stock becoming fairly valued.

      One of the more foolish reasons given for cutting the dividend came out of the mouth of Jim Cramer. (No, I don't watch his show. I happened to see him on an MSNBC show as I was channel surfing Monday evening.) He said that with GM workers suffering so much the shareholders should suffer, too.

      Get real.

      Long-time GM shareholders have taken a beating holding the stock. (No, I don't count myself in that category. GM was first mentioned on this blog at $26.75. I bought some stock in the company earlier this year, before this site was launched, and have stated previously my average cost is in the low $30s. I'm not happy about that, but these are early innings for me. If I cry the blues over GM, it might be 3 or 4 years from now.)

      The dividend may need to go eventually -- but doing so to punish shareholders is an unbelievably stupid reason. And that's entirely apart from the fact that it would further punish GM employees who are also shareholders.

      GM Announcing Job Losses Before Thanksgiving
      A few have also criticized GM management for announcing these job cuts and plant closings "just before Thanksgiving," saying it's bad PR.

      Maybe it is. Maybe it isn't.

      I'm all for not ruining the holiday season for workers. But there is NEVER a good time to do this sort of thing. Or have it happen to you. And, a couple of times I've spoken to people who got the axe in January. They said if they'd known what was coming, they wouldn't have used their credit cards so much over Christmas. Anecdotal, to be sure, yet something to think about.

      Broadcasting and Media Stocks
      Most of the companies I've been looking at as investments lately are in the broadcasting and media-related industries. More research needs to be done before anything gets bought, but it's interesting that most of the stocks I find appealing fall into those categories.

      Another View of Knight Ridder
      Speaking of media-related companies, on Monday I posted about John Ellis' commentary on Knight Ridder. A reader of this site added his comments that he thought Knight Ridder and other newspaper stocks were attractive buys.

      Yesterday Ellis posted another view of Knight Ridder, one that he'd received in an email from a friend:

      ". . . I am not sure I totally agree with (your column on Knight Ridder). In fact, I think there is a certain amount of remaining value in Knight Ridder -- and the rest of the dinosaur newspapers.

      "KR throws off about $700MM in cash. Aggressively, one could probably take out about $300MM in costs, primarily in sales & admin, but also in layers and layers of editors and reporters who cover the same thing over and over, so you could probably remain with a company that throws off about $1B in cash, for at least a few more years. On top of that, the web sites leverage actually good brands, Miami Herald, Inquirer, etc. that could probably be organized into a growth business that will be successful, though they won't be yahoo.

      "I am actually surprised that the private equity folks aren't taking a more solid look at KRI.
      Even if one assumes the business declines at 10% per year, one could create about 8-10B of value which would more than make today's shareholders ($4.B) and today's bond holder ($2B) happy and leave a little something for the risk taker."

      Good stuff.



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        • All information posted on this web site has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. Under no circumstances is this an offer to sell or a solicitation to buy securities discussed on this site. Past performance is no guarantee of future success. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise. CONTROLLED, its editor and/or related parties have positions in companies discussed. All data, information and opinions are subject to change without notice.