Griffin and his team appear that they may be interested in an entertainment theme, with CBS Corporation (NYSE:CBS) as another of their largest new picks. We would note that this could be a special situations play instead, as the company plans to spin out its outdoor advertising business as a real estate investment trust. REITs receive favorable tax treatment and so are more tax efficient, though we would note that recent reports have indicated that the IRS may revise its standards for REITs to be more restrictive. CBS currently trades at 19 times trailing earnings.
According to the 13F, Blue Ridge owned 4.6 million shares of The Gap Inc. (NYSE:GPS) as of the beginning of April. The retailer has actually been doing well recently; in its most recent quarter revenue grew by 7% compared to the same period in the previous fiscal year, and margins improved enough to drive a 43% increase on the bottom line. Obviously we wouldn’t expect that degree of growth to continue, but hopefully earnings can rise along with increasing sales. The trailing P/E is 16 and so Gap requires little further growth to justify its current valuation.
As a result Gap joins Comcast and Citigroup Inc. (NYSE:C) as interesting prospects in our book- it and Comcast certainly aren’t candidates for pure value status, but their businesses have been performing well recently and if they can continue growing at similar levels they may prove undervalued at current prices. Netflix, meanwhile, seems to speculative for us to buy right now. That’s also somewhat true with CBS; while its valuation isn’t as extreme, we can’t be sure how dependent the current price is on the spinout’s REIT candidacy.
Disclosure: I own no shares of any stocks mentioned in this article.