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number cruncher

What are we looking for?

Media darlings.

In spite of their mixed financial results, social media stocks (such as Facebook and Twitter) have undoubtedly captured a lot of attention over the past couple of years. However, the valuations of these stocks are not particularly attractive to value investors. At Lorne Steinberg Wealth Management, we decided to take a look at "traditional" media stocks and see whether that group offers any appealing alternatives. This sector includes companies whose primary area of business lie in either television, radio or print media (or a combination of these).

The screen

Using S&P Capital IQ, we screened for media companies in North America that had a market capitalization of more that $1-billion (U.S.). To screen on valuation, we only wanted companies whose forward price-to-earnings ratio was less than 17 times. We also wanted the screen to display the debt-equity ratio of all the companies on our list, as firms in the media sector often have higher levels of debt. Finally, we also wanted to see how the share prices of the stocks on our list have performed over the past year.

What we found

The results can be seen in the accompanying table and include a fairly wide range of companies in terms of market capitalization. There are several Canadian companies on the list.

As an example, Corus Entertainment Inc.'s core business includes radio and specialty television channels. One issue that may deter some investors is that the company has a dual class share structure and the shares that trade on the TSX are non-voting. Corus was originally owned by Shaw Communications Inc., which also appears on our list. In 1999, Corus was spun off as a separate company. Nevertheless, the Shaw family holds the majority of the voting shares in both Corus Entertainment and Shaw Communications.

Our list contains another pair of companies that were formerly part of a single entity. Viacom Inc., which is the least expensive company on our list, was spun off from CBS Corp. in 2006. The two stocks are at the opposite ends of the valuation range. Viacom shares have been one of the weaker performers over the past year, and its stock looks relatively attractive trading at a forward P/E ratio of 11.3 times. However, the company, which through its media networks segment operates about 230 television channels, has seen a clear decline in its U.S. ratings. This, in turn, has led to lower advertising revenue in its largest market.

As always, investors are advised to do their own research before purchasing any of the stocks listed here.

Samuel Oubadia is a portfolio manager at Lorne Steinberg Wealth Management in Montreal.

Traditional media large caps