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Company name News Corp
Stock ticker NWSA
Live stock price [stckqut]NWSA[/stckqut]
P/E compared to competitors Good

MANAGEMENT EXECUTION

Employee productivity Good
Sales growth Poor
EPS growth Poor
P/E growth Fair
EBIT growth Poor

ANALYSIS

Confident Investor Rating Poor
Target stock price (TWCA growth scenario) $10.12
Target stock price (averages with growth) $17.93
Target stock price (averages with no growth) $22.35
Target stock price (manual assumptions) $20.68

The following company description is from Google Finance: http://www.google.com/finance?q=nwsa

News Corporation is a diversified global media company. The Company operates in six segments: Cable Network Programming; Filmed Entertainment; Television; Direct Broadcast Satellite Television; Publishing, and Other. Cable Network Programming produces and licenses news, business news, sports, general entertainment and movie programming for distribution through cable television systems and direct broadcast satellite operators. Filmed Entertainment engages in the production and acquisition of live-action and animated motion pictures for distribution and licensing in all formats in all entertainment media worldwide. Television is engaged in the operation of broadcast television stations and the broadcasting of network programming . It engages in the direct broadcast satellite business through its subsidiary, SKY Italia. In November 2012, News Corporation, through a wholly owned subsidiary, completed acquisition of ESPN’s partnership interest in ESPN STAR Sports.

 

Confident Investor comments: At this price and at this time, I do not think that a Confident Investor can confidently invest in this stock.

If you would like to understand how to evaluate companies like I do on this site, please read my book, The Confident Investor.

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I encourage people to ask me questions about my book, The Confident Investor, or about the stock market, in general. I am open to questions from Twitter or on this site. I recently received a question about stock splits. The basic question asked if it was a good time to buy immediately after a company split its stock. The purist answer is that it shouldn’t matter but that may not be the complete answer.

First, a bit about stock splits. Companies split shares of their stock to try to make those shares more affordable to individual investors. When a company does a stock split, its share price will decrease, but the market capitalization of the company will remain the same. For example, if you own 100 shares of a company that trades at $100 per share and the company declares a two for one (2:1) stock split, you will own a total of 200 shares at $50 per share immediately after the split.

The reason for stock splits has dropped over the years. Before the advent of easy trading brokerages on the Internet, it was not uncommon to see penalties for buying shares in increments other than 100 shares. With this penalty removed, individual investors are free to invest the amount they can afford – $1,000 of a $10 stock (100 shares) is just as easy to buy as if that stock was $25 per share and the individual investor only purchased 40 shares. This is mostly irrelevant to “institutional investors” that may be buying millions of dollars of a stock.

Some companies now avoid stock splits altogether. The theory is that the stock split doesn’t matter so why do it. Also, if the company is catering more to institutional investors rather than individuals, then the higher stock price doesn’t matter. As further benefit, the higher stock price eliminates some trading strategies and effectively encourages longer term holders of a stock. Some companies like to have a higher per share price and almost carry it as a badge of honor – Google [stckqut]GOOG[/stckqut], Apple [stckqut]AAPL[/stckqut] and Berkshire Hathaway (BRK-A) being 3 of the most well known with a high stock price. To be honest, a higher stock price even slows down the effectiveness of my program described in my book, The Confident Investor. If you want to learn more about my methodology, you can purchase my book wherever books are sold such as Amazon, Barnes and Noble, and Books A Million. It is available in ebook formats for Nook, Kindle, and iPad.

Now to the original question. Should you expect a bump up after a split. The purist answer is no since there is no additional value or wealth being created with a stock split. However, a study of the performance of 2,750 companies from 1975 to 1990 conducted by Rice University professor David Ikenberry found that shares climbed, on average, about 3.4 percent in the days immediately following a stock split.

I could easily argue that this Rice University study is too old to be relevant in the 21st century. This time frame for the study was during the penalty of non-block size trading. It was also a time frame when trades were measured by eighths (1/8) rather than to the penny as they are now (this change happened in 2001).

Bottom line, there may be a small bump up when a stock splits but the markets are efficient enough that this will only be short term and likely not worth trading.

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Many readers have reached out to me to ask about how to run a balanced portfolio. This article is designed to help you with general guidelines for developing such portfolio. A balanced portfolio should be 20-40% in index funds and 60-80% in individual stocks spread out among many industries. This allows you to have exposure to the general market, the international market, and the growth of truly well-run companies. The proportion of money between index funds and individual companies should be dictated by your age and how soon you will need the money to pay for life’s expenses.

The first thing to do is invest 20 to 40% of your portfolio in index funds. Divide these index funds into at least four categories:

  • international funds
  • bonds funds
  • small-cap or mid-cap funds
  • large-cap funds

I suggest that you balance your fund investments equally every year. This means that you would have 5% of your portfolio in each fund category. You may have to annually add money from the individual stock 80% of your portfolio to maintain at least 20% index fund exposure.

It really doesn’t matter which company manages the index fund you choose. There is some variation in international funds since they can track many different markets so you may need to study a bit for that component. There is little true variation in bonds funds so just find one that tracks the Barclays Capital Aggregate Bond Index. For the stock index funds, they should track one of the S&P indexes or one of the Russell indexes.

If you are over 65 then you may want to start dropping down to 60% of your portfolio being in individual stocks and 40% index funds. You definitely want to consider this if you are over 75 years of age. However, if you are under 65 then you probably should have a portfolio of stocks that is approximately 80% of your portfolio. At 65 you may think you need to be more cautious but there is a high probability that a 65 year-old person is going to live to be 90. If you have reached the glorious age of 75 then you are even more likely to live to 90.  With 25-45 more years of spending to do, you really need your money to continue to grow even if you are retired. As you approach 80 or 90 years, you may want to have a more even mix of stocks, bonds, and money-market cash. To understand this better, check out my whitepaper, Retire In Luxury.

Divide 80% of your portfolio into equal allotments that are larger than $5,000 per allotment. You should have at least 10 allotments in a balanced portfolio. You could have 20 or 30 allotments depending on the size of your portfolio. If you do not have $50,000 to divide 10 ways then divide your existing portfolio into $5,000 increments. You will find that you are much more efficient and profitable if you invest $5,000 or more using GOPM. If you have fewer than 10 allotments, be very diligent about getting a good mix of industries so that you are not overly hurt by any one trend.

Regardless of the number of allotments that you choose, you need to choose twice that number in stocks that you are tracking.  So if you have 10 allotments, you should track 20 stocks. This allows you to always have a stock that is rising to invest your money. Invariably, some of your tracked stocks will be going sideways or down but by tracking double the number you need, you are likely to have 10 that have upward momentum.

You should plan on investing in 10 to 30 companies at a time using the tools that I show in The Confident Investor. Grow your investment in any individual stock until you have doubled your money using GOPM (Grow on Other People’s Money).

When you have doubled your money in half of your companies, you may want to consider changing your allocation size to a larger allocation. This will allow you to continue to grow your investment in those great companies.

It is also possible to stop investing in any given company at half of an allotment or twice allotment depending on how you feel about that company. You should also factor the number of companies in the same industry you already having a portfolio. For instance, if you have 2 companies in nearly every industry except you only have one mining company, feel free to allow that mining company to grow to a double allotment. Similarly, if you have 3 software companies in your portfolio then you may want to limit one or all of them to a half allotment so that your portfolio is not overweight in that category.

Let me show you an example of a 50-year-old man (we will call him Bob) that has been able to save $150,000 in his IRA account.

  • $7,500 in an international index fund
  • $7,500 in a bond fund
  • $7,500 in a small-cap  or a mid-cap fund
  • $7,500 in a large-cap fund
  • $120,000 divided into 10 allotments of $12,000 each.  This means that Bob will purchase up to $12,000 in any stock on the 20 possibilities.

For the 20 stocks, Bob chose the following from the Confident Investor Watch List:

Apple Inc. Technology – Personal
Akamai Technologies Technology – Internet
Ansys, Inc. Technology – Enterprise Software
Atlas Pipeline Energy
Caterpillar, Inc. Manufacturing – Machinery
Chipotle Mexican Retail – Restaurant
Cirrus Logic Technology – Semiconductor
Deckers Outdoor Footwear
Ebay Inc. Retail – Web
Extra Space Storage Real Estate
Goldcorp Inc. Mining – Gold
Google Inc. Advertising – Web
Hms Holdings Corp Healthcare – Services
Helmerich & Payne Energy
Merck & Co., Inc. Pharmaceutical
Net Servicos de Comunicacao Telecommunications – International
Priceline.com Inc. Retail – Web
Boston Beer Alcohol Beverages
Washington Banking Finance
Yum! Brands, Inc. Retail – Restaurant

Bob will invest in these companies as indicated by the technical indicators described in my book, The Confident Investor.  You can purchase my book wherever books are sold such as Amazon, Barnes and Noble, and Books A Million. It is available in ebook formats for Nook, Kindle, and iPad.