Self-proclaimed market contrarian Smead Capital Management Tuesday touted Discovery, Inc. as a stock to consider for forward looking investors looking beyond the coronavirus pandemic, calling it a company with extensive free cash flow and an abundance of female viewers drawn by shows like 90 Day Fiance.
“We see Discovery, Inc. providing popular, unscripted entertainment via HGVTV, Food Network and TLC to millennial men and women viewed any way they want,” said Smead’s chief investment officer William Smead in a letter titled ‘Panic Selling Exacerbates Bargains.”(He also likes home builder Lennar and American Express on the pent up demand by millennials who will be buying homes and breaking out credit cards again once the current crisis ends.)
Discovery shares closed up 4.3% Tuesday at $21.51, continuing to hover – like many stocks – near 52-week lows. It was a $33-dollar stock last fall and doesn’t deserve this kind of hit, Smead said. He noted the company has $3 billion free cash flow, a key metric for investors that’s a measure of financial flexibility. Companies that are subscription based like Netflix, or have dual revenue streams like Comcast or A&T have generally help up better than those mostly dependent on advertising.
The market rallied today but the upward move followed a stomach-churning session on Monday when the Dow posted its biggest point drop since 1987. It’s been incredibly volatile and Smead, a “long-duration” investor, compared it to financial crises in 1981, 1999 and 2008 when spooked investors killed entire sectors without paying enough attention to longer-term fundamentals.