Hi guys! I’m Tim Melvin, and welcome to A Better Way to Wealth!
You know, if you really want to make a lot of money in the stock market, you’ve got to do something that is incredibly difficult… You’ve got to learn to love the down.
Fortunes are born in bad markets and “out of favor” sectors.
The biggest money you’re ever going to make is buying into market crashes and sector selloffs (no matter how hard that is to do at the time).
If you think about it, if you were aggressively buying in 2003, 2008 and March of 2020, you’ve done well over the last couple of decades compared to just the index investors!
Think about this… Warren Buffett and Charlie Munger built Berkshire Hathaway into a company mostly on special situations a lot like the ones that I bring you from time to time here on A Better Way to Wealth.
Now, they eventually got too big to invest in smaller situations and became bear market buyers…
They learned to love the down.
Go back and look at when they bought their initial position in Coca Cola right after New Coke failed… and Wells Fargo in the bank selloff in the late 1980s and crash of 1987!
They have learned to love the down and, as a result, became very rich and you need to do the same!
Even though most stock indexes are up and 2021 was by all accounts a pretty good year to be a stock investor, there are still pockets of the market that were down on the year.
So today, I’ve got two stocks that were off quite a bit in 2021 that I believe are poised for a huge recovery in 2022.
By learning to love the down in these two names, you could end up making quite a bit of money by investing in these two out of favor stocks.
Altice USA Inc
The first stock today is one that I believe we’ve talked about before… It’s a company by the name of Altice USA Inc (ATUS).
They have two businesses… They have SuddenLink, which is a collection of rural, small town broadband companies providing the basics like television, phone and Internet services, usually sold in a bundle package.
Now, I know everybody talks about cutting the cord, and that is a thing. It is happening in some areas but not all over.
What’s important to keep in mind is that the only way to get directly connected to the wired Internet is from either a cable TV company like Altice or from your phone company.
This means the biggest competition for a company like Altice is the phone companies, but Altice is still doing great business in these smaller towns with very little competition.
Heck, Verizon doesn’t even offer FiOS in most small towns across the country, leaving it pretty much with just AT&T as your primary competitor in most cases.
All that to say, Altice has a great market where they’re able to control their pricing a little bit, and that’s a market that they like and I think will continue to grow over the years.
So, they’ve got that business, and then the next part of the business couldn’t be any more different!
Located in New York City, Cablevision is about 60% of the company, offering similar services, but in the New York City metropolitan area, which is a solid market for cable.
Here again, your competition is going to be Verizon and AT&T and a couple other cable companies, but Cablevision has a huge share of the market in the New York City area, and they intend to focus on growing that share.
Now, I know a lot of people are cord cutting these days, especially the younger generations. Older folks like me may utilize a few TV apps every now, and then we’ve still got cable too.
And with some of the pricing packages that cable TV companies are putting together, by the time you bought HBO Max and Disney Plus and Hulu and Netflix and paid for Amazon Prime, cable begins to look much more competitive than you might have realized.
I’m just saying, yes, it is happening, but cord cutting is not the end of the cable business, but Altice shares are priced like it’s the end of the cable business and they won’t have any Internet business either. That’s just not the case.
Altice should grow at a nice rate going forward. Generating tons of cash flow and being very opportunistic, if the stock sells off like it has been, they get aggressive about buying back stock, which is brilliant!
Stock bought back at low multiples of cash flow and low multiples of earnings adds tremendous value to the business, and Altice has been doing exactly that for some time, which is why I like the stock.
Now, it is down about 50% year over year, but I think they’re going to do extremely well and could easily double or more in 2022.
The next company up is Discovery, Inc. (DISCA).
This is Discovery Networks, which includes all my wife’s favorite TV channels like HGTV for the home and garden stuff, the Food Network, etc.
This is a huge business. It’s in 85 million homes in the US, available in 200 million homes internationally, in 220 countries with 340 million subscribers whose programming goes out in 45 languages!
This is a massive cable and smart TV content company whose smart TV app (Discovery Plus) is doing extremely well, and they’re creating a lot of new, well received programming specifically for the smart TV app.
So, again, this generates massive cash flow, and they’re using it to reduce debt, some for acquisitions, making a couple large acquisitions over the last decade or two. Then they used cash flows to pay the debt back down.
They are investing heavily in developing new programs for Discovery Plus, and I think that’s going to pay off with huge dividends and lots of subscriptions for the service.
Stock is down 17% over the last 12 months, but I think it’s safe to assume it’s going to recover.
All in all, this is a fantastic business… It’s on cable, the cord cutters are buying the app, so there’s going be a lot of cash flow coming in.
Meanwhile, they’re going to continue to pay down debt and look around for deals that add value to the company and bring content into it, all while continuing to expand around the globe.
It was down last year, but I think, in 2022, 50% to 100% gains are quite possible and indeed somewhat likely in the current market environment.
The Wrap Up…
Remember, learn to love the down.
With these two companies, yes, they’ve been way out of favor recently, but I think they’re going to come back into favor with investors this year.
If that happens, you should see nice gains, pretty much no matter what the overall broad market does…
And that, as always, is A Better Way to Wealth.
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