On two occasions in the past year, I've recommended Liberty Capital (Nasdaq:LCAPA) and Liberty Global (Nasdaq:LBTYA) - both companies are run by John Malone. Well, now I'm going to recommend Liberty Interactive (Nasdaq:LINTA). Its stock is up 69% in the past 52 weeks compared to 26% for the S&P 500, so it might be ready to take a break. Nonetheless, the tracking stock has some good assets under its roof. Here's hoping a third time's a charm.
TUTORIAL: How To Analyze Earnings

The Nook
Liberty Capital made a $1 billion bid for 70% of Barnes & Noble (NYSE:BKS), the world's largest bookseller, on May 19, and it did so for two reasons. First, John Malone is a value investor and sees an opportunity to buy at the bottom. With Borders, its largest competitor, in bankruptcy protection, the book business is in dire straights. You couldn't ask for a better contrarian investment. Secondly, and more importantly, Barnes & Noble's Nook has 28% market share amongst electronic readers. Although the equity investment will attribute to Liberty Capital, and not Interactive, its QVC shopping channel would most certainly play a big part in growing Nook's business. There is no reason why this can't be the model for future acquisitions where Liberty buys dying brands and resuscitates them using its media might, similar to what Iconix Brands (Nasdaq:ICON) does. (For more, see Investing Like A Contrarian.)

A Barron's article in March about Liberty Interactive correctly observes that an investment in the interactive business is really a bet on QVC, which generated a lion's share of the revenues and profits in 2010. There's no disputing this fact. However, part of the interactive group includes equity investments in four public companies that were spun-off from IAC/Interactive (Nasdaq:IACI) in August 2008, including 32% of HSN (Nasdaq:HSNI), 25% of Tree.com (Nasdaq:TREE), Interval Leisure Group (Nasdaq:IILG) and 25% of Expedia (Nasdaq:EXPE). Of the four, HSN and Expedia provide the most compelling stories, although for different reasons. QVC's market share in TV home shopping is 69% compared to 29% for its minority-owned rival. At some point, QVC will buy HSN and together they will rule home shopping. As for Expedia, I wrote a very favorable article in March about the online travel company. At the time, I thought its stock was oversold by a substantial amount and slightly more than three months later, it appears investors agree. Since March 16, its stock is up 40.8% compared to 7.7% for the S&P 500. They might be minority investments but they continue to pay dividends.

On the surface, Liberty Interactive appears to trade at fair value. However, two investment industry heavyweights see things in a different light. Bill Nygren, co-manager of the Oakmark Fund, which owns 5.2 million shares, believes the real net asset value per share is $26. Nygren adds in $4.50 in value from its public company investments referred to above and the goodwill from its majority purchase of QVC from Comcast (Nasdaq:CMCSA) back in 2003, which reduces earnings per share by 60 cents annually. Weitz Funds owns 7 million shares in various funds including the Value Fund, where it's the second largest holding. Weitz believes it will grow earnings at a double-digit pace in the intermediate term and, if Liberty Media is successful in its attempt to split-off the interactive assets into its own company, it will then be able to buyback shares. The matter is currently before the Delaware courts. I don't personally see this as a selling feature, but money managers seem to love share repurchases. Either way,

Bottom Line
Liberty Media's assets are a very interesting conglomeration. Investors in the interactive group will likely do well in the long-term.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  2. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  3. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  4. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  5. Stock Analysis

    When Will Dick's Sporting Goods Bounce Back? (DKS)

    Is DKS a bargain here?
  6. Investing News

    How AT&T Evolved into a Mobile Phone Giant

    A third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
  7. Stock Analysis

    Home Depot: Can its Shares Continue Climbing?

    Home Depot has outperformed the market by a wide margin in the last 12 months. Is this sustainable?
  8. Stock Analysis

    Yelp: Can it Regain its Losses in 2016? (YELP)

    Yelp investors have had reason to be happy recently. Will the good spirits last?
  9. Stock Analysis

    Is Walmart's Rally Sustainable? (WMT)

    Walmart is enjoying a short-term rally. Is it sustainable? Is Amazon still a better bet?
  10. Stock Analysis

    GoPro's Stock: Can it Fall Much Further? (GPRO)

    As a company that primarily sells discretionary products, GoPro and its potential falls right in line with consumer trends. Is that good or bad?
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center