Motley Fool: Business model positions CBS for big payoffs
CBS (NYSE: CBS), with properties such as The CW, Showtime Networks, TVGN, Smithsonian Networks and Simon & Schuster, has great growth opportunities for the future and a fallen stock that seems undervalued now.
CBS is a company in transition, moving toward a stronger business model that’s less focused on advertising and more on creating its own content to air and license out. It already has complete ownership of some of the most popular shows on TV and more than 70 percent of its total lineup.
With top-rated TV series such as “NCIS” and “The Big Bang Theory,” the company has led broadcast networks in Emmy nominations. Furthermore, CBS recently announced its own stand-alone Web subscription service, giving it even more control over its created shows.
More content creation can fatten the company’s bottom line as these series are picked up for lucrative deals not just in the U.S., but internationally. For instance, “NCIS: New Orleans,” one of the company’s most popular series, already has a large international deal in place, and CBS expects to bank as much as $5 million in revenue per episode.
CBS stock was recently trading with a price-to-earnings ratio of just 10.7, and it’s also financially healthy, with relatively low debt and industry-leading gross profit margins. Tune in and see if it’s a good fit for your portfolio.
Ask the Fool
Q: Are stock buybacks good or bad? – M.M., Fort Wayne, Indiana
A: It depends. In theory, stock buybacks, whereby companies buy back and essentially retire some of their own stock, are a great way to reward shareholders. That’s because fewer shares remain, with each worth more. Consider this extreme example: If you own 10 of a company’s 100 shares, you own 10 percent. But if it buys back 50 shares, your 10 now make up 20 percent of the company.
Since valuable company cash is spent buying back shares, companies should only be doing so when the shares are undervalued. If a company is buying back shares at inflated prices, it’s destroying value. That money would be better spent paying out a dividend, paying down debt, being reinvested in the business, or in a number of more profitable ways.
Q: I’m getting tired of hanging on to my loser stocks and waiting for them to recover so that I can get back some of my lost money. What should I do? – D.C., Las Cruces, New Mexico
A: If a company has some temporary trouble and your research suggests it still has strong prospects, hang on. But if you’ve lost faith in the company, why try to earn a certain amount in it when you can more reliably earn that same amount or more elsewhere?
Imagine that your shares of Meteorite Insurance (ticker: HEDSUP) are underwater by $1,000, and you know some other more promising companies. If you sell your Meteorite shares for a loss and move what’s left into one of those companies, you’re more likely to earn that $1,000 back – and more. Keep your money invested in your best ideas.
My dumbest investment
Years ago, my wife and I decided to put some money to work in the stock market for the long haul. Using “professional” tips from publications and financial TV shows, I picked a few stocks. My wife picked a retailer “because we always go there,” and a cement company “because there’s construction using concrete everywhere.” Well, my stocks sank and hers have been steadily moving upward. – Mike G., Iowa Park, Texas
The Fool responds: Plenty of financial gurus on TV and in print are savvy investors, but they make some bad calls, too. And some aren’t that skilled and may be promoting one of their own stock holdings, hoping to give it a boost.
A retailer you frequent isn’t necessarily a great buy, but it does help to focus on companies you know well. You may be likely to notice if they start slipping or falling out of favor with other consumers. It’s smart to look around you for promising companies and trends. Be sure to consider simple index funds, too – they tend to beat the pros.