Washington Post

A friend of mine recently did a stock screen on Morning Star looking for value stocks with wide moats. Interestingly, Joe Mansueto , the founder of Morning Star is a huge Warren Buffet fan and the Washington Post is the type of stock Warren Buffet likes (In fact Buffet sits on the board and owns a few shares).

Anyway, he said “Buffett looks for companies that have a “moat” that shields them from competition and allows them to earn high rates of return. The moat is something that creates high barriers to entry for would-be competition.” The Washington Post has this – it’s the most faomous newspaper in its area and does the best political reporting in the country. And no one seems likely to start up a newspaper that competes directly with the Washington Post…

So here’s what my friend had to say about Washington Post stock. As always, we’re not recommending any action other than you doing your own research.

At 750/share this stock seems to be discounted. The stock may be as much as 25% below its intrinsic value. Remember this is a value stock, not a growth stock. It’s PE is 22.3 and PEG is 2.1. The newspaper is a mature business as is its cable division.

While the cable division has been one of the most profitable in the industry, it did lose 90,000 subscriptions due to Katrina. Subscription growth has been slowing anyway (competition from Direct TV has a lot o do with that).

So is there any chance for growth? Yes, there is a chance. The company is taking profits from its mature businesses and investing in Kaplan University online which has seen 23% growth this quarter alone. Still 40% of the company’s income comes from advertising which is somewhat cyclical.

As a whole the company has been seeing revenue growth of 8%/year and its 17% operating margins are quite attractive. This company does not provide guidance or do conference calls with analysts (another thin Buffet likes since management is focusing longer term rather than quarter to quarter).

As always, this is just to get you started. You must do your own research.

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