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Forget Friendster. Forget Facebook. And definitely forget YouTube.
If you want to make money as an investor in the media space, you have to buy three old-media plays that the hipsters might dismiss as "so yesterday."
I'm talking about:
- Liberty Media Capital (LCAPA, news, msgs), which is a misunderstood chunk of the vast empire that media mogul John Malone has pieced together over the years. Liberty Media Capital is on the cusp of a grand corporate reshuffling of assets that will make it easier for investors to see their true worth down the road. If you buy now, you will get in before the changes.
- Discovery Holdings (DISCA, news, msgs), the parent of Discovery Communications, which new management is working to revive. It has the potential for international growth because a lot of its content -- epitomized by scenes of lions chasing gazelles -- works in all cultures if you dub in new voice-overs.
- ValueVision Media (VVTV, news, msgs), which is better known as ShopNBC, the third-largest TV shopping channel after QVC and HSN, or the Home Shopping Network. Cost cutting and new technology that should boost Internet-based sales will likely lift this stock out of its doldrums.
All three stocks recently saw large insider buying -- one of the reasons I think you could see 30% gains or more in all three positions over the next year.
Liberty Media Capital
Liberty Media Capital is one of two tracking stocks that represent the business of a vast media empire known as Liberty Media, which is run by John Malone.Liberty Media Capital represents part of the complex hodgepodge of businesses accumulated by Malone over the years. It includes everything from cable TV channels and shares of Time Warner (TWX, news, msgs) to the Atlanta Braves baseball team.
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Liberty Media Capital is so confusing that it carries what investors call a "complexity discount." In plain English, this means that investors take one glance at Liberty Media Capital and run away because it is too complicated to figure out.
One investor who hasn't done this is Tom Carney of the Weitz Value Fund (WVALX), which holds a big position in Liberty Media Capital. He's glad he's taken the time to figure out the stock, because it is up over 30% since the start of the year. But Carney, like many other analysts, believes anyone who owns the current version of Liberty Media Capital could see gains of another 30% or more. They believe the upcoming reshuffle of Liberty Media assets could make it easier for other investors to grasp the true value of this part of Malone's media empire.
Here is how it will work. Liberty Media Capital is about to be split up into two more tracking stocks. One, essentially the "son of Liberty Media Capital," will house Liberty Media's financial assets -- including stock positions in Time Warner, Sprint Nextel (S, news, msgs), Motorola (MOT, news, msgs) and Viacom (VIA.B, news, msgs), as well as the Atlanta Braves, and some smaller media assets and private companies.
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Liberty Entertainment, the other new tracking stock, will hold a collection of media companies such as Starz Entertainment, which owns television's Game Show Network, which has programs like "Jeopardy!"; FUN Technologies, an online gamer; and WildBlue, a rural broadband service.
Carney estimates the entertainment piece alone has a value close to that currently afforded Liberty Media Capital. "You might be getting the complicated (financial) remainder for next to nothing."
That financial piece is probably worth $40 a share or more of Liberty's current $124 price. Part of that value may be realized through some clever financial engineering that will let Malone trade away tax liabilities for other assets and cash.
There is another important piece to this puzzle. The new Liberty Entertainment tracker will house Malone's 40% stake in DirecTV (DTV, news, msgs), a satellite-TV company. Malone recently got his stake by giving News Corp. (NWS, news, msgs) his shares in that company in exchange for the DirecTV position.
Speculation is rife that Malone will use the new Liberty Entertainment tracking stock to buy the rest of DirecTV. This would boost the value of Liberty Entertainment even more, since it would eliminate the "holding company discount" it suffers from owning only a part of DirecTV. It would also give Malone another channel for his vast collection of media content.
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