When the markets get expensive, you have to go out of your way to find bargains. Today, media conglomerate ViacomCBS (NASDAQ:VIAC) is one of those bargains, and VIAC stock is right-priced for a buy-and-hold investment today.
Don’t get me wrong. I fully understand that it’s psychologically difficult to buy a stock when so many people are rabidly bearish on it.
But then, that’s the challenge of being a contrarian. You have to be willing to make a move when a stock is hated or ignored.
If it’s a solid business – which I believe ViacomCBS still is – then the share-price rebound could be spectacular. So, let’s see if there are reasons to give a legacy entertainment company a second chance.
VIAC Stock Sets Up for a Fall
Let’s be perfectly honest here. VIAC stock went up too far, too fast during 2021’s first quarter.
It started off the year at $36 and change, but then rocketed up to a 52-week high of $101.97 by March 22. It’s just not normal for a large-capitalization stock to nearly triple in such a short span of time.
It’s possible that Reddit users may have been involved in that wild rally. Whatever the cause may have been, in hindsight it’s evident that VIAC stock was due for a pullback.
And, what a pullback it was. When Archegos Capital unwound its massively leveraged position in ViacomCBS in March, investors ran for the hills.
Really, that incident wasn’t ViacomCBS’s fault. Archegos Capital was in over its head, and VIAC stock holders suffered collateral damage from the fallout.
A Crash and an Opportunity
After the Archegos incident, the ViacomCBS share price was cut in half in a matter of days. As the stock tumbled to the $40 area, Wall Street analysts naturally had to adjust their price targets.
However, Bank of America analyst Jessica Reif Ehrlich apparently saw an opportunity where others only saw carnage.
She boldly upgraded her rating on VIAC stock from “underperform” to “buy.”
In addition, the analyst hiked her price target on the stock from $38 to $53, citing ViacomCBS’s “scarcity value in an industry facing consolidation.”
So far, we haven’t seen the stock move towards $53. It’s really only been moving sideways for three months.
But as the old saying goes, the longer the base, the higher in space. In other words, VIAC stock might be “basing” for an epic second bull run of 2021.
Multiple Reasons to Invest Now
Sure, it’s possible to own shares of ViacomCBS because Reddit users might precipitate a short squeeze, bringing the stock price back up to $100.
Yet, sitting around and waiting for that to happen isn’t necessary the best strategy.
Fortunately, there are other reasons to take a long position. For example, value-focused investors should appreciate the fact that VIAC stock has a trailing 12-month price-to-earnings ratio of 9.2.
Since the major stock market indexes are hovering near their all-time highs, it’s not easy to find stocks trading at such a low multiple.
At the same time, dividend seekers should be intrigued at ViacomCBS’s generous forward annual dividend yield of 2.32%. It probably won’t make you rich overnight, but the dividend is a nice bonus for the shareholders.
And then there’s the takeover talk. InvestorPlace contributor Will Ashworth considered the possibility of ViacomCBS being acquired by, or at least merging with, another media/entertainment company.
There’s no guarantee that this will actually take place. If it does, though, then VIAC stock could double and might even revisit $100.
The Bottom Line
Buying beaten-down stocks is a strategy that has to be implemented carefully.
It should only be done if a company is still viable. It also helps when the company is trading at a low multiple, and it pays a generous dividend.
At the moment, ViacomCBS fits that description. VIAC stock is a rare bargain in today’s expensive market, and deserves the attention of any true contrarian.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
