Hold Off on Vivendi for Now

To be clear, Vivendi Universal(V) is a company with endless possibilities. And management's comments that the company will continue to perform well, even if the economy heads into recession, is welcome news. But I still don't think the stock is a buy.

Don't get me wrong. Over the long run, the company is a winner. Its media and communications business is a cash-flow machine. But let's face it -- its music and publishing business will have a tough year in 2002. And if you think people are going to continue to pay $8 to $10 a pop to keep seeing movies, or $40 a head to visit one of Universal's theme parks when so many people are losing their jobs, you're kidding yourself.

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To be fair, I like the fact that management has bought back 5% of the stock in the open market since this past June. I think its efforts to enhance shareholder value are to be commended. But again, where are we going here? Even though the company is somewhat more recession-proof than say an AOL Time Warner(AOL), because Vivendi's less dependent upon advertising revenues and has an exceptional pay-TV business that will continue to thrive, investors will undoubtedly lump Vivendi together with other media plays. And as a result, it won't be able to garner the type of multiple it likely deserves.

So investors should probably hold off on buying this stock, at least until the outlook for consumer spending begins to clear. I have no doubt that, eventually, patient shareholders will be rewarded. But at this point, if you've been sitting on the sidelines, I think it would be wise to wait for a better entry point.

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