Don Draper’s Friday News & Notes

Don is ready for the 4th- are you?

As we get ready for the long weekend and a celebration of the signing of Thomas Jefferson’s masterpiece,  today’s News & Notes is brought to you by Don Draper. Today marks the official spin-off date for AMC Networks (AMCX). AMC is home to some excellent shows such as Breaking Bad and The Walking Dead, as well as the disappointing The Killing, but is best known for picking up a show HBO rejected called Mad Men. Mad Men introduced us to the dapper, mysterious Don Draper (played by Jon Hamm) and made all of us thirtysomething guys want to live in the 1960s.

Anyways, as with most spinoffs, I did a bit of research and planned on dedicating a full post to the company, but there was one problem- there was nothing terribly interesting when looking at the potential value of AMC. But, there is one glaring problem at the company. The company’s former parent, Cablevision (CVC), loaded the newly independent AMC with more debt than a Greek bank – $2.4 Billion worth! While AMC, which also owns the We, IFC, and Sundance networks, will be able to generate good cash flows, my fear is that the heavy debt load will limit the amount of investment that can go into development of new shows which is the lifeblood of a company like this. At around $40 with negative shareholder equity, AMC appears overvalued to me.  If the stock sells off, or an interesting situation develops, I’ll write a follow up. Now onto some other notes.

  • Research in Motion (RIMM), the maker of the ubiquitous Blackberry, has been a hot topic among investors as of late. Lowered management guidance and fears of a rapid decline of its business to competitors like Apple have sent shares into the bargain bin and some investors are taking a look. The Reformed Broker entertainingly pitches the company to Warren Buffett (he declines) and Frank Voisin makes a terrific case for investing in the company. Bullish articles on RIMM at Seeking Alpha are routinely met with disgust by the majority of commenters, which is an excellent sign of the sentiment on the stock. While their devices are no longer cutting edge and retail smartphone users are staying away from the Blackberry, the company’s advantage is their deep penetration in the corporate space.  My company largely uses Blackberries and I spoke to one of our IT decision makers this week who felt that there won’t be a move away from Blackberry soon because of the entrenched enterprise software and higher security versus the iPhone. While I don’t currently have a position in RIMM, it is worth a deeper look given its ridiculously cheap metrics and high cash flow generation.
  • Frank Voisin continues to hit the ball out of the park this week with a very detailed post on Gamestop (GME).  While the headlines scream that GME is the next Blockbuster, Frank shows that isn’t the case. The company is still growing, holds net cash on the balance sheet, and possesses a strong management team. While I am not in touch with what the gaming community is thinking, I’m a little concerned that GME is more like Barnes & Noble (BKS). As always, paying the right price is key.
  • Staying on the tech front (how many cheap large cap tech stocks are there?), Adib Motiwala writes about his latest idea, Western Digital (WDC). The hard drive maker remains my biggest mistake of omission in the last year. I did a lot of research and analysis on WDC early in 2010, and when it fell to the mid 20s in the fall, I just couldn’t pull the trigger. Alas, its up 30% since then but Adib still thinks its  a good value. Meanwhile, my mind is anchored at WDC’s $27 October price point- damn these behavioral biases!
  • Finally, Jae Jun at Old School Value introduces us to the Absolute PE valuation model. Taken from Vitaly Katsnelson’s Active Value Investing, the Absolute PE model is a quick way of assessing the value of a stock. While there are many issues with using multiples, I’ve been playing around with this a little bit and like it. I’ll try using it in my next in-depth analysis.

That’s it for today. For my American readers, enjoy the long weekend! For the non-Americans, just enjoy the 4th of July.

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2 Responses to Don Draper’s Friday News & Notes

  1. MIguel says:

    Thanks for the link. Keep up the great blog.

  2. Pingback: Bill Smead’s Wednesday News & Notes | The Margin of Safety Investor

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