Weitz Funds manager Wally Weitz (Weitz Value (WVALX), Partners Value (WPVLX), Hickory (WEHIX), and Partners III Opportunity (WPOPX)) answers our questions on media stocks, the health-care debate, Berkshire’s value in this economy, and the right reasons to re-enter the market.
1. Weitz Value has a sizable stake in media businesses. What is your view on the value of content and how media companies can monetise it in the future?
It is impossible to generalize about the value of “content.” If you can make something once (e.g., a book or movie) and sell it millions of times, that’s great. If you can get a few small payments on each of millions of obscure pieces of content (e.g., songs), that’s also great. Unique, very popular programming like ESPN can be extremely valuable while a 4th-best shopping or movie channel may have little value. Liberty Media (LINTA) has built QVC into a retailing powerhouse and has enhanced it with an online business that may surpass the video version. Newspapers have found that their content is not nearly as valuable as it once was because of the Internet as a rival distribution channel. I would say that both content and distribution can be very profitable but that neither is automatically “king.”
2. Do you think Comcast is right for going after NBC Universal?
I trust Comcast (CMCSA) CEO Brian Roberts to be intelligent, practical, and conservative in his approach to acquisitions. He caught flak for his attempt to buy Disney (DIS) in 2004, but my guess is that he coveted ESPN and could have earned reasonable returns from the whole package over time. Maybe his vision is to create another ESPN out of parts of NBC and his sports interests. From an investment point of view, Comcast is a huge cash-generation machine that seems undervalued by investors. Its growth will probably continue to slow over time, with or without NBCU, so it is not the exciting growth stock it once was, but as long as it is well-managed, growing, and reasonably cheap, we’re happy to own it.
3. Some value investors are making the case that the values in the health-care sector are as attractive as they have been in a while. Although your portfolio has exposure, you haven’t jumped in with the gusto of other managers. What has held you back?
“Health-care” businesses come in many flavours, just as “financials” and “media” companies do, so it’s important to distinguish among various sectors–managed care, lab testing, hospitals, drugs, physician practices, medical devices, etc. The politics of rationing and reimbursement and the trillions of dollars involved seem to ensure that the rules of the health-care game will change from time to time, and it seems that we’re in the middle of a particularly violent set of changes. We want to buy “mispriced assets,” and we’re pretty sure health-care will offer lots of candidates, but we don’t want to guess how the current debate in Congress will play out. There should be plenty of time later to buy these stocks when business models have been adjusted and companies have found ways to cope with the changes.
4. Is Berkshire Hathaway still your favourite holding? Why?
Berkshire (BRK.A) is our largest holding and in many ways our favourite stock. It is huge and conservatively financed so it may not have as much upside potential as some stocks. However, we believe it is a perfect combination of ingredients for this economy and stock market. Warren has taken advantage of the financial crisis and made a number of terrific investments over the past year, and if the “green shoots” are real and the bear market is over, we think Berkshire has lots of upside potential. If, on the other hand, the recovery is weak and we face several years of stagnation or slow growth (quite possible), Berkshire’s fortress balance sheet will allow us to sleep well.
5. What would you tell investors reluctant to buy stocks today due to anchoring on the prices of earlier this year? Are they correct in doing so, or are stocks still undervalued even after bouncing off their market lows?
It is really hard to ignore where stock prices have come from, but it’s important to focus on today’s price as compared to one’s estimate of the value of the underlying business. We believe that most of the companies we follow will recover and will be worth more in the future, but we are very uncertain as to how long their recovery will take. We have reworked our models using conservative assumptions; we have given preference to companies that have staying power in case the economy gets worse before it gets better; and we hold some cash reserves. Having said that, though, we find lots of stocks we are comfortable owning (if not excited about) and think it would be dangerous to try to guess at better “entry” points.