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3 Old Media Stocks with Renewed Hope

It’s not a very encouraging environment out there for many media companies. Reader’s Digest just filed for bankruptcy … again. And cable television continues to decline in viewership.

But while some out there will claim that a brave new world of media and Internet communication is going to destroy the old, investors shouldn’t necessarily panic and sell off anything that isn’t a big digital name.

Consider, for example, that Warren Buffett’s Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B) is a big shareholder of Gannett (NYSE:GCI) and recently bought $142 million worth of local newspapers from Media General (NYSE:MEG). Clearly print media is not a growth industry, but there must be something of value there to pique Buffett’s interest.

So what are some old media stocks investors may want to consider? Here are three:

Disney 

The Walt Disney Co. (NYSE:DIS) may not sound super interesting to you. It has a theme park business that has been hit hard by the Great Recession. It has a host of networks including ABC and Disney Junior that are facing the same digital troubles as the rest of TV. It has a film production and distribution business that has been hit by recent declines in movie going — including a 16-year low in attendance just a while ago.

But management isn’t focused on lamenting these setbacks. Rather, Disney continues to push into emerging markets — regions with a growing middle class — big-time to build its entertainment brand. One recent and quirky example: a Turkish version of ABC’s famous show Desperate Housewives. Only about 25% of Disney’s revenues and profits come from international markets and if you back out the developed market of Europe, you see that there is a lot of upside for growth if DIS can export its brand successfully.

The company is also being innovative with new partnerships, including a big multi-year deal with Netflix (NASDAQ:NFLX) to bring much-loved films like Dumbo and Alice and Wonderland to the streaming giant … and will eventually include theatrically released feature films.

On top of this, Disney is focused on efficiency. There’s a rumor it may be exploring layoffs to cope with recent acquisitions, such as hangover from the big 2009 merger of Marvel and what is sure to be a daunting consolidation with Lucasfilm after a $4 billion deal to purchase the Star Wars shop.

To top it off, fundamentals are looking decent. DIS boasts eight consecutive quarters of year-over-year revenue growth. And though earnings did dip recently, guidance was good and the stock has nearly doubled the market since Jan. 1.

There are big risks going forward, sure. A big one worth mentioning is the ever upwards-spiraling cost of sports programming for ESPN. Any serious disruption to the ESPN franchise could be material for Disney.

However, this company has a powerful brand and should weather any short-term trouble. And since it has more than tripled its dividend in the last decade from 21 cents a quarter in 2003 to 75 cents currently, there’s a good chance Disney’s meager 1.3% payout could become a significant income stream down the road should this trend persist.

Cumulus Media

Cumulus Media Inc (NASDAQ:CMLS) is small-cap radio stock, owning or operating about 570 stations across the U.S. Though since 2004 this stock is off a brutal 85%, it remains profitable and its $2.5 billion merger with fellow broadcaster Citadel look to be paying decent dividends.

CMLS is paying down debt right now, so it’s not delivering a dividend to shareholders, but the merger is wise because it could improve the company’s free cash flow significantly across the next year or two. Furthermore, a cyclical recovery in the next few years will be better for the local advertising markets that Cumulus stations rely so heavily upon.

Some might claim radio is dead thanks to Pandora (NYSE:P) and other streaming audio options. But local radio has survived a great deal of disruption in the last century, from television to Sirius XM (NASDAQ:SIRI) to the rise of Internet and mobile technology. Many people continue to listen to AM talk radio or surf the FM dial in the car on the way to work, and I don’t expect that will change anytime in the near future.

There are risks, of course. Some of the multiple expansion may already baked in with a forward price-to-earnings ratio of 15 or so, and clearly radio is not a growth industry since the market is already saturated and the medium is very consolidated between Cumulus and privately-held Clear Channel Communications.

But Cumulus is in a good position after the Citadel merger, even if all it does is gain efficiencies and pay down debt.

Cinemark

I have been watching Cinemark Holdings (NYSE:CNK) since May 2011, and if you bought on my advice a few years back you’d have a total return of about 40% right now.

I still like Cinemark, even if movie traffic hasn’t been stellar in recent years. One reason is because we might be seeing a turnaround — with box office receipts up in 2012 for the first time since the Great Recession. Furthermore, I like the income potential with a 3% yield at current prices and a strong history of increases; dividends have jumped 61% from 13 cents in 2007 to 21 cents currently despite lackluster results during the downturn of 2008 and 2009.

But as to Cinemark’s specific operations, the reach is good with nearly 3,900 screens in 39 states. It also has a good emerging markets presence with nearly 1,000 screens even after recent plans to sell its Mexican operations. It’s also worth noting that one extra revenue stream for CNK is National Cinemedia (NASDAQ:NCMI), its joint venture with fellow theater stock Regal Entertainment (NYSE:RGC) and privately held AMC Theaters to show advertising to movie-goers as they wait for the feature film.

Cinemark just delivered record revenue in its Q4 earnings, though shares are off about 4% in three days thanks to missing earnings estimates and the general downdraft for the market.

But even after the decline it is up over 30% in the last year and over 20% in the last six months.

Some folks are convinced that modern home theater experiences continue to push movie-going to the wings but, like the NFL, it’s hard to imagine a sea change in the next few years that results in massive attendance declines even if high-def experiences offer similar thrills for cheaper prices in the comfort of your own home.

Movies will remain a big business, and Cinemark will continue to cash in.

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Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.

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