Any conversation regarding the most astute investors of all time will no doubt include Berkshire Hathaway chief Warren Buffett. The legendary investor earned the nickname “Oracle of Omaha” for his uncanny ability to uncover successful investments others overlooked — and his roots in Omaha, Nebraska.
Buffett has run Berkshire Hathaway for more than 50 years, amassing an unrivaled track record. Since taking the helm in 1965, its stock has gained more than 20% annualized and overall has gained a mind-boggling 3,641,613%.
The past 18 months have been tough for investors, and an increasing number of them are looking for any edge they can find to improve their returns. Some are poring over Berkshire’s extensive holdings in hopes of uncovering a hidden gem.
One stock in Buffett’s arsenal with plenty of potential is Paramount Global (PARA), down roughly 78% from its peak. The good news is that there are a number of catalysts that could drive the stock higher after a challenging 2022.
More than just streaming video
Late last year, streaming video represented 35% of all television viewing, surpassing cable for the first time in a milestone many thought would stand for years, according to data provided by Nielsen.
Even as streaming becomes the dominant platform for television consumption, it would be shortsighted to focus solely on Paramount+ — its up-and-coming streaming service — by overlooking the media company’s valuable and diversified entertainment portfolio.
In 2022, broadcast channel CBS retained its crown as the No. 1 television broadcast network for the 14th consecutive year, boasting seven of the top 10 and 14 of the top 20 programs. These included No. 1 drama NCIS, No. 1 comedy Young Sheldon, and No. 1 new show Fire Country.
Paramount Pictures had plenty of bragging rights over the past year, with Top Gun: Maverick the top domestic box office draw of the year (and No. 2 worldwide). In all, the movie generated global ticket sales of $1.5 billion, climbing the ranks to become the No. 5 highest-grossing movie domestically and the No. 12 highest-grossing movie worldwide in history. What’s more, Paramount Pictures had six films open at No. 1, and the company generated more than $2 billion in ticket sales with just 10 movies.
So while its streaming business may have a great deal of potential, Paramount Global’s overall media empire is far more than just streaming.
A laundry list of top-tier content
That said, Paramount+ has a wealth of content in its coffers, with more than 30,000 television episodes and movies from CBS, BET, Nickelodeon, MTV, Comedy Channel, and of course Paramount Pictures.
Another key advantage for Paramount+ is the licenses it holds to a broad range of sporting events. As the result of a recent contract renegotiation, it has broadcast rights to every local NFL game shown on CBS, part of an 11-year, multiplatform rights agreement inked in 2021.
In 2022, viewers were treated to 38 regular-season NFL games and three playoff games. The platform also boasts a variety of other sports, including NCAA basketball, European soccer, and PGA golf, among others.
Streaming led the charge
Even as the economy falters, Paramount Global continued to exemplify the story of the little engine that could. In the face of challenges, fourth-quarter revenue edged 2% higher year over year, with some segments putting up more robust numbers.
Most impressive was the performance of its streaming service — Paramount+ — which added nearly 10 million new subscribers and grew revenue by 81%. That helped push the company’s total direct-to-consumer (DTC) subscribers to more than 77 million, helping it reach the scale necessary to prosper. Ad-supported streaming service Pluto also shined, adding 6.5 million new monthly active users and now reaching nearly 79 million viewers.
Perhaps most importantly for investors, management said Paramount Global is on track to meaningfully grow profits and return to positive free cash flow in 2024 after several years of heavy content investment.
Gale-force macroeconomic headwinds for legacy media
Marketers tend to pull back on ad spending during times of economic turmoil, and that phenomenon was in full view for Paramount. The company’s TV media segment struggled, as revenue fell 7% year over year. Foreign currency translations also weighed on results, cutting revenue by 2%.
When the dollar is strong, as it is now, sales made in international markets translate into fewer dollars, pressuring results. When the tide turns and the dollar weakens, however, Paramount will benefit.
Paramount Global stock has fallen significantly from its peak, currently down 78% (as of this writing). The good news, however, is that its valuation is absurdly low, trading for less than 1 times sales, when a reasonable price-to-sales ratio is between 1 and 2.
This bargain-basement price is probably the reason Team Buffett has increased Berkshire Hathaway’s ownership in Paramount Global in each of the past four quarters. The company’s stake now amounts to 93.6 million shares, worth more than $2 billion.
Given the diversity of its multimedia portfolio, the significant opportunity for growth, and its cheap price, Paramount Global is one Berkshire stock to buy before it starts soaring.
— Danny VenaWhere to Invest $99 [sponsor]
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Source: The Motley Fool