Dear Mr. Berko:
In the fall of 2010, I had $8,000 in my money market account, and our old broker, who retired, recommended that we purchase 250 shares of John Malone’s Liberty Global at $28. This man wasn’t the sharpest knife in the drawer, but we trusted him. Actually, my wife and I thought we were buying John Malone’s DirecTV. Now our new broker, who is young enough to be our grandson, wants us to sell Liberty Global, which has tripled, and put the money in Federated Intermediate Corporate Bond Fund because he thinks the market is going to have a big sell-off. Please advise us.
— RG, Indianapolis
Dear RG:
If most of Wall Street agrees that long-term interest rates are going to rise, why would this young cadet broker of yours recommend that you purchase a bond fund? The answer is: The commission is 4.5 percent. Keep your Liberty Global, because there may be better things to come.
Liberty Global (LBTYA-$83), the largest cable company in Europe, was founded in 2004 by the most successful media, cable and communications deal-maker on the planet. Its founder and chairman, the white-haired John Malone, is a 1963 Phi Beta Kappa from Yale with a degree in electrical engineering. Malone’s nickname is “the cable consolidation cowboy.” He owns 32 percent of Rupert Murdoch’s News Corp. (NEWS-$15), which is The Wall Street Journal, Dow Jones, Fox, The Times, etc., and Malone is also the founder and chairman of DirecTV (DTV-$70) and the chairman of Liberty Media (LMCA-$134). LMCA is the communications and entertainment empire that owns the Atlanta Braves and is seeking to buy Time Warner and Sirius Satellite Radio.
And LBTYA should do well because it’s a John Malone company and his “magic touch” seems to have the special energy that an enterprise needs to be successful. LBTYA is in the TV, broadband and telephone business, and its international territory covers Europe, Asia, Africa and Latin America. There’s lots of competition out there, but competition is Malone’s master craft. Malone will make sure that LBTYA provides the most effective TV channels, producing the most desirable and attractive sales and broadcast programming in 27 languages to 124 countries that use cable, satellite and Internet Protocol TV networks. And LBTYA’s broadband division offers the most modern, up-to-date video services, Voice Over Internet Protocol, Web hosting, cloud solutions, and conferencing, Internet and mobile phone services on its respective continents.
Last year, LBTYA took in $14.1 billion in revenues, with a cash flow of $4.4 billion, up from $2.2 billion in 2004, when it had a negative cash flow. Malone is following the same playbook he used to build Tele-Communications into the largest cable provider in the U.S. before he sold it to AT&T for $32 billion plus debt assumption in 1999. LBTYA is using cheap debt to purchase smaller cable systems, and though it doesn’t produce a profit, the company generates a hugely healthy cash flow. Meanwhile, there’s lots of exciting opportunity in Europe, Asia, Africa and Latin America. So this year, LBTYA expects to report revenues of $15.1 billion and should earn its first profit since 2004’s $1.45 a share. And if Malone’s consolidation expertise meets with barely modest success during the following years, revenues and earnings should continue to rise, and so should LBTYA’s stock price.
Most investors would stay far from Europe, which is wallowing in economic gloom and stay even farther from Africa, most of which is a vast no man’s jungle. Latin America doesn’t look attractive. Nor does the Middle East, a constant war zone that’s an economic, religious and psychosocial conundrum. But business is doing well, and LBTYA added more than 1 million subscribers last year. There always are extraordinary opportunities when things look bleak, and Malone is a genius at separating the wheat from the chaff. The Street expects LBTYA to add at least another million subscribers this year. And though earnings may reach only $1.95 a share in 2015, LBTYA’s cash flow could exceed $5 billion. Hold this baby.
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Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate website at www.creators.com.
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