Why I think Media General is a buy

Shares of Media General (MEG) have declined by about 28% year-to-date. At the current price of $27.2 the stock is trading at almost a 10 year low. The publishing and media business has suffered dramatic declines in advertising revenue as a result of the internet. Classified advertising has increasingly migrated to the online space causing several companies in this industry to lose their bread-and-butter earnings.

While everything looks like gloom and doom, Media General has created a dominant franchise controlling dailies, television, and online properties in the S.Eastern United States, with Tampa being one of their strongholds.

In addition, in the Florida region the company has some dominant Spanish dailies that generate significant advertisement dollars.

Historically, odd numbered years have been trough years in terms of earnings for the company due to the absence of political advertising and the Olympics. While even years have contributed toward peak earnings. As such, 2007 is shaping up to be one of the worst years for the company. However, with the US Presidential Elections and the Beijing Olympics in 2008, the company should generate significant advertisement dollars.

In 2006 the company divested its CBS stations and acquired 4 NBC stations. This acquisition positions them very well for the 2008 Presidential elections and the Beijing Olympics. These stations are located in key battleground states such as Ohio, N.Carolina, and Virginia where signficant advertisement dollars will be spent. With NBC owning the broadcasting rights for the Olympics additional advertisement dollars will be garnered from these stations.

While the company has taken on a huge debt burden of approximately $900 million about 5X EBITDA, I believe that they will reduce their capex in 2008, potentially divest their interest in SP Newsprint, and generate about $100 mln in free cash flow in 2008.

Over the next two years they should be able to reduce their debt burden by at least $150 to $200 million providing for a proportional expansion in equity.

At the current depressed valuation levels, Media General has considerable upside of about 50% to 80%. With book value of about $32, there is considerable margin-of-safety in the investment.

Catalyst: 2008 Presidential Elections, Beijing Olympics

Why I consider Optimal Group a bargain

Shares of online payment processing company Optimal Group (OPMR) crashed as a result of the US Internet Gambling Enforcement Act of 2006. The payment processing service for the online gaming unit provided approximately 50% of the company's revenue. According to the annual filing about 80% of this segment came from US sources, i.e. 40% of total revenues will be affected by this law.

Upon passage of this act Optimal Group divested this business segment into FireOne Group plc. an Ireland-based provider of payment processing services for the online gaming industry. Optimal owns 76% of FireOne Group.

Even if the outlook for this business segment does not improve, I still think Optimal Group is a bargain. The company's non-gaming unit, Optimal Payments, accounts for 60% of the revenue. While it has lower margins than the gaming unit, Optimal Payments is still profitable on a GAAP basis and generates considerable cash flow.

The balance sheet is solid. The company has cash and investments net of bank debt and customer obligations of almost $182 million ( approximately $8 per share), working capital excluding reserves of $94 million, and shareholder equity of $219.3 million (all as of Dec 31, 2006).

"Clinton Group" a major shareholder and hedgefund controls has about 4.9% of the shares. They have urged management to distribute the cash to shareholders as a special dividend or a dutch tender offer. In addition, they would like management to put itself on the block for sale. Clinton Group has reduced its holding from about 6.3% to the current 4.9%. Either way, the siginificant cash position will act as a floor on this company's share price.

Optimal Group has engaged Genuity Capital to investigate strategic alternatives. Recently, Optimal bought back about 1.1 million shares, something that the Clinton Group had suggested to Optimal's management. Optimal has also recently announced an offer for all of the outstanding shares of FireOne Group plc.

At this point the company looks like a bargain.

Quest Diagnostics

Quest Diagnostics is one of the leading diagnostic and testing companies providing information services to doctors, hospitals, and managed care organizations.

Quest has approximately 150 laboratories and 2000 patient service centers. It processes over 140 million requisitions per year. At present, routine testing generates about 78% of revenues. The company is based in Teterboro, NJ and GlaxoSmithkline owns about 21% of the common stock.

Although, United Health has decided to use Lab Corp of America as its national provider, a position that Quest enjoyed previously, it is uncertain how negative this will be to the revenues of Quest. Although shares have fallen about 15% since Septenber 2006, I feel that the drop in shares, combined with the high ROIC provide an enticing entry point.

I haven't bought any shares of Quest but I am certainly considering the stock at this point.

I am continuing to research the stock at this point and will provide my new findings soon.

10 years later

Somehow, I remember 1997 like yesterday. The cliché "time flies" truly is a cliché.

What is noteworthy and hopefully useful to people of all ages is that over those 10 years I have truly come to appreciate the power of compounding.

Take a look at the prices of the following comapnies in my portfolio on January 26th 1997:

Stock	1997	2007	% annual return
JNJ	$24.62	$66.68	17.08%
AIG	$27.62	$68.89	14.94%
NVS	$25.88	$58.26	12.56%
BRK.B	$1155	$3585.91	21.05%

It is interesting to note that, the stock that I least followed during that period was BRKB (Berkshire Hathway B) and it delivered the best return. My (Heartburn/Profit)% was pretty low with Mr. Buffett's company.

There is something to be said about patient and disciplined investing. You don't have to be a genius, what matters is the ability to maintain temperament, follow good companies, and pick them up when they are not in vogue.

Sounds easy right! However, I have found that to stick with that idea for 10 years is the hardest part.

Eat your beer bottle!

Don't you just hate it when this happens? You finally discovered the most hated stock that the "lemming crowd" avoids. You buy into your research, but learn it the hard way that what you lack is temperament. (Oh! by the way as an affirmative you find that Mr. Buffett holds about 5% of the company.)

Investing boils down to one word "discipline". I will rephrase that, "life is really about discipline". Not to get too philosophical, over the years I have found that, common sense, patience, and probability (wherein an outcome is to a great extent on your side) are factors that really matter in investing. Most human beings are frail and susceptible to the vagaries of their own emotions and their environment. To some extent, the ups and downs in the market are mere reflections of our mood fluctuations.

First and foremost, (taking the liberty to use the opposite sex as an analogy to a stock) I think it's hilarious how Wall Street portrays the so-called "unattractive" woman. She was never ugly to begin with, so simply combing her hair and wearing a push-up bra turns her into a sex bomb!
When we compare this to a stock, it seems that thanks to several upgrade spells cast by the analysts, a stock magically rises from the dead like a gorgeous babe.

I bought into one such "shrek", Anheuser Busch (BUD). Back in late 2005, at $43 BUD seemed a bargain and when I sold it for $48 after 6 months, I thought a return of approximately 12% (without dividends) was excellent.

BUD generated double digit returns of approximately 13% in EPS growth over the last 10 years and has captured about 50% of the US market (a wide moat, or a competitive advantage business in my view). Interestingly, valuation has not kept pace with earnings growth. Today, the company trades around $51 about 12% below my estimated fair value my of about $60. . However, the certainty that the estimated fair value will be achieved without losing much sleep is what makes the stock more attractive to me rather than those upgrades.

The fact that I sold it for $48 and did not wait longer demonstrates my temperament in this regard. As someone said, I think it is "time to eat the proverbial beer bottle!"

Anyway, doing nothing or as one of my friends says colloquially "fuckin' the dog!", sometimes makes more sense.