Buy under 20

As part of his retrenchment theme, Keegan recently bought Time Warner Cable, whose roster of subscribers grew in the first quarter. Keegan figures that even with less discretionary income, consumers won't fiddle with their TVs; they may even spend more on cable and less on going out.

Time Warner is moving ahead with a plan announced in 2008 to divide its media-content and distribution businesses. It will spin off, on a pro rata basis, its roughly 90% stake in Time Warner Cable (TWC) to Time Warner shareholders. But first, Time Warner Cable will give those holders a huge special dividend: $9.25 billion, or $10.27 a share (the payment and record dates haven't yet been set). Time Warner, as the holder of the cable unit's Class B stock, will receive the bulk of the payout. Robert Willens, whose online Willens Report surveys the latest developments in taxation and accounting, says that Time Warner Cable estimates that 30% to 35% of the special distribution will be taxable as a dividend. The balance will be a return of capital, and be applied against and reduce dollar-for-dollar the basis (cost) of an investor's stock. If the return of capital exceeds the cost, the excess will be a capital gain, for which the IRS has crafted new rules. According to Willens, the new rules say "the portion of a distribution which is not a dividend shall be applied pro rata on a share-for-share basis to reduce the cost of each share of stock held by an investor within the class of stock on which the distribution is made." So recipients of a return-of-capital distribution must take the gain on their low-basis blocks of stock, even if the basis of their higher-cost shares hasn't been fully recovered. Willens says that may not be an issue with Time Warner Cable, however, because its stock "has always traded above the portion of the distribution that is likely to be a return of capital." Time Warner's pending reverse stock split is intended to boost its share price after it decouples from Time Warner Cable.

7.6

P/E is 19.6, a P/S of 2.95, and a PEG of 1.81.

The first reason we looked at Time Warner Cable is because Don Logan, a board member, recently bought nearly $400,000 worth of TWC stock on the open market. We also saw that the media giant is considering another stock buyback program, right on the heels of a $20 billion buyback plan which the company just completed. Ranking as some of the most expensive buybacks in history, the $20 billion and the proposed new plan are an attempt to promote stock performance with debt reaching its target levels. Time Warner Chairman and Chief Executive Richard Parsons also says the company plans to increase its dividend "modestly and predictably over time."

In early May, Time Warner released impressive first quarter results with revenue increasing 61% and operating income growing 28%. The company also boasted unit additions of 910,000, a 35% increase over the previous quarter.

Time Warner Cable President and Chief Executive Officer Glenn Britt said, “With 61% growth in revenues over the prior year and the net addition of 910,000 revenue generating units, a robust 35% increase in revenue generating unit net additions over the prior quarter, we are on track to deliver on our full year business outlook. We accelerated quarterly subscriber net additions in all key services, including basic and digital video, residential high-speed data and Digital Phone.” He continues, “We are also moving closer to completing the integration of the Acquired Systems, and by year-end expect these systems to offer Time Warner Cable's advanced residential services."

A Bear Stearns analyst recently upgraded Time Warner Cable to "Outperform" from "Peer Perform". Analyst Spencer Wang sees the cable company’s overhanging customer service problems clearing up.

A director recently purchased 10,000 shares or $380,000 worth of stock.

Upgraded by Bear Stearns from Peer Perform to Outperform

Shares Held 4,397,883--1.72% of Portfolio

Upgraded by Citigroup from Hold to Buy

Hurt me.

Something's fishy about TW deals