Analyst rates TW best stock

Conglomerate, cable firms lead way on top 20 list

And the two best stocks in media are -- drum roll, please -- Time Warner and Time Warner Cable.

It might be a little early for long-suffering shareholders to celebrate, but Miller Tabak analyst David Joyce says shares of both companies have a good shot at more than doubling during the next two years.

In a recent research note to clients, Joyce put the 20 media stocks he covers in order, best to worst, using such criteria as risk, exposure to advertising and where we are as a country and industry in terms of the recession cycle.

The pattern that emerges is that he is bullish on cable TV providers and likes dual revenue streams -- as long as one of those streams isn't newspaper advertising.

Rounding out Joyce's top five picks are Comcast, Liberty Global and RCN Corp. Cable providers Knology, Mediacom Communications and Cablevision Systems are sixth, seventh and 10th, respectively.

That so many cable companies crack the analyst's top 10 is ironic given his concern that the Internet represents stiff competition to television. He says, though, that Internet users rely on cable infrastructure, so those businesses have protection.

Shares of Time Warner closed at $24.55 on Tuesday, and Joyce sees them climbing to $36 in a year and $54 in two years. Catalysts include AOL "becoming a distinct entity," strong cable networks bucking a weak advertising trend and a broad and deep studio business offsetting weakness in publishing.

At the other end, Joyce's least-favorite media stock is Sirius XM Radio, though his two-year target suggests its stock price could increase threefold or more. Risk in that rosy scenario is great, though, hence its last-place position.

Joyce says Sirius XM's subscriber growth will suffer with a declining auto and retail market and that a large reverse stock split could come by year's end. Plus, the 40% pro forma equity taken by Liberty Media Capital represents too much dilution for Joyce's liking.

Rounding out his bottom five are Clear Channel Outdoor, Entravision Communications, Dolby Laboratories and Lionsgate.

All have impressive two-year targets, but the stocks rank low on the list because, like Sirius XM, there is more risk in achieving those targets than for stocks that rank higher.

Overall, Joyce is bullish on media but warns of choppiness in the near term because stocks fell so hard in March and have rebounded so strongly of late. Both moves were overdone, he said in an interview.

Of his list, he says, "A lot of these companies could be doubles or better in two years as we come out of recession."

Beyond top choice Time Warner, here's the analyst's view of the conglomerates:

-- Viacom is his ninth choice with a two-year target of $35. Its shares closed Tuesday at $23.31. Joyce says the loss of Steven Spielberg pressures the Paramount film studio, and he calls for more original programming and fewer repeats at MTV.

-- News Corp. is 11th with a two-year target of $27. The stock finished Tuesday at $10.17. Joyce says investors were upset that the company sold a large stake in DirecTV, a growth asset, and bulked up in newspapers, an underperforming sector, with the purchase of Dow Jones.

-- CBS is Joyce's 13th pick with a two-year target of $27. The stock closed Tuesday at $6.79. If his targets are hit on all 20 stocks, CBS would mark the second-biggest gain after Entravision, which Joyce says could climb from 60 cents Tuesday to $5 in two years. He says CBS is appealing to "value-based contrarians," though he's not aggressive on the name because of its reliance on advertising.

-- Disney is 15th with a two-year target of $35. It closed Tuesday at $22.88. Joyce calls the company "the last of the media conglomerates to falter." He worries, though, about flat attendance and margin pressure at theme parks, and he notes that Disney is the most expensive conglomerate on a free-cash-flow basis, trading at a multiple of 17.2. News Corp. is second at a multiple of 9.9, and Time Warner and CBS are lowest at 6.7 and 6.3, respectively.