4. Warner Bros. Discovery, Inc. (NASDAQ:WBD)
Share Price: $7.74
Number of Hedge Fund Holders: 48
Warner Bros. Discovery, Inc. (NASDAQ:WBD) was formed in 2022 by the merger between WarnerMedia and Discovery Networks. As a result, the company has developed a wide portfolio ranging from TNT, TBS, CNN, and Discovery. Not only this, but the company is also one of the top content distributors that comprises film, television, streaming, gaming, and music.
It is one of the best stocks under $20 to invest in now. The stock was held by 48 hedge funds in Q2 2024.
The company faced some serious challenges arising from the gap between the market cap and the book value of the company. Moreover, there was also some softness in the advertising business which led to a 5% decrease in revenue year-over-year.
However, regardless its D2C business saw significant growth. The number of new subscribers added during the second quarter reached 3.6 million on top of the 2 million that were added during the previous quarter. Moreover, the upcoming and ongoing sports league resulted in double-digit growth for Warner Bros. Discovery, Inc. (NASDAQ:WBD) sports coverage.
This topped with the recent premier series on HBO including The House of the Dragon and The Penguin is expected to keep the company on track to achieve $1 billion in EBITDA by the next year.
Bonhoeffer Capital Management stated the following regarding Warner Bros. Discovery, Inc. (NASDAQ:WBD) in its first quarter 2024 investor letter:
In remembrance of Charlie Munger, I listened to and read his investment speeches in Poor Charlie’s Almanac. His speech to the University of Southern California business school specifically dealt with the application of worldly wisdom to investment management and business. There were five ideas presented by Munger in that speech which are particularly relevant in the Bonhoeffer portfolio. First, over the long term, it’s hard for a stock to earn more than the underlying business earns. As an illustration of this principle, we examined two firms, Old Dominion Freight Line (ODFL) and Warner Bros. Discovery, Inc. (NASDAQ:WBD).
WBD is an example of a value stock whose value has been impaired by a declining intrinsic value over time. Historically, WBD has been consolidating media content and distribution firms. However, the media content and distribution industry has been fragmenting over the past 20 years, with many new competitors and lower barriers to entry. Based upon Morningstar’s estimates, WBD is almost always undervalued, but stock price declined by 13.4% per year less than intrinsic value which declined by 5% per year, which is still a disaster compared to the index which increased by 12.7% per year. The average RoE was 7.2% and was declining through the period and ended negative. The chart below shows both the stock and Morningstar’s estimate of its intrinsic value over time.
These trends of growth and their effects on returns are reflected in the new investments we have invested in and those firms we have sold recently. We have sold most of our telecom and media firms (which have had flat to declining intrinsic values over time). These firms have been replaced by consolidating capital light distribution firms and specialized financial services firms (which have had increased intrinsic value over time) one of which is described below.
