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Trade of the Day: Discovery Communications (DISCA)

Penguin cam to the rescue?


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I like to keep my ear to the ground to get advance notice of sea changes ahead, especially during earnings season. But in this case, I’m seeing a continuation of an old trend that many have left for dead — cable TV networks. As more and more people cancel their cable plans in favor of streaming video services like Netflix (NASDAQ:NFLX), it is tempting to dismiss companies like Time Warner (NYSE:TWX) as dinosaurs. But they’re not dead yet — far from it. In their earnings report on Feb. 6, TWX handily beat estimates, in large part due to success at its cable networks, with HBO in particular a standout.

Its success shows why cable is still so relevant, and has surpassed broadcast television as a money-maker for media conglomerates.

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The one I have my eye on is Discovery Communications (NASDAQ:DISCA), the $28 billion media conglomerate responsible for the Discovery Channel, Animal Planet, the Military Channel and other non-fiction programming. This is a great business because their universal, evergreen content can easily be sold overseas and can be seen in reruns without much diminution of value. This year, the company is making a big push into a new category that it calls “ambient” programming. It now has ten channels online that show animals in a habitat, typically a zoo, just kind of doing their animal thing without any story line.

Here is the African Penguin Cam, which as you might suspect shows penguins in a habitat at the Audubon Aquarium of the Americas in New Orleans, 24 hours a day. Occasionally, a zookeeper comes online for a chat. And there are special events such as feedings at 11:30 a.m. and 4:30 p.m. ET. The company makes money by showing short commercials periodically.

As you can see above, early this week the stock pulled back a bit, but looking at the yearly chart, you can see this stock can really move when there’s a fire lit under it–and I smell smoke.

Recommendation: Buy DISCA under $79 for an $82.50 target, with a stop of $76.

InvestorPlace advisor Jon Markman operates the investment firm Markman Capital Insight. He also writes a daily swing trading newsletter, Trader’s Advantage, which aims to capture profits of 15% to 40% and often as much at 100% to 200% in less than 90 days. 

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