This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Why Warren Buffett Really Likes Malone's Liberty Global

Stocks in this article: LBTYA LBTYK BRK.A BRK.B

NEW YORK (TheStreet) - Warren Buffett's investing lieutenants, Ted Weschler and Todd Combs, appear increasingly enthusiastic about Liberty Global (LBTYA) after boosting Berkshire Hathaway's (BRK.A) investment in John Malone's European cable company in the first quarter.

Liberty Global has recently caught the eye of prominent hedge fund investors, who view the John Malone-founded company as way to profit from trends in the U.S. broadband and wireless market.

>> Read More: Liberty Global As A Safe Way to Play Netflix Expansion

Some hedge funds expect that consolidation efforts currently underway in the wireless and cable market in the U.S. will move across the Atlantic to Europe. They see Liberty Global as a prime takeover target for large telecom conglomerates such as Comcast (CMCSA), AT&T (T) and Vodafone (VOD). Meanwhile, Malone has emerged as a careful steward of Liberty Global's purse strings and may have expanded smartly in European cable and broadband markets just ahead of a surge in user activity.

In February, Berkshire disclosed it had built a nearly 3 million share stake in Liberty Global's Class A shares worth just under $300 million. That disclosure, made in a fourth quarter filing with the Securities and Exchange Commission, was seen as a bet made by Berkshire Hathaway's up-and-coming investing guru's Ted Weschler and Todd Combs.

This quarter, Berkshire took a position in Liberty Global's Class C shares, building an over 7 million share stake. Berkshire also added to its existing holding in Liberty Global Class A shares, buying over 4 million shares in the quarter, putting its investment at about 3.42% of the company's outstanding shares.

Both stakes hinge on a distribution made in late January, where Liberty Global distributed one Class C share per every Class A share. Berkshire's C Share position appears to be a result of that distribution and an increase in the company's investment in Class A shares.

In the first quarter of 2012, Berkshire disclosed a 5% stake in Liberty Media (LMCA) and a large position in DaVita Inc. (DVA). Both stocks had been large investments of Ted Weschler's Peninsula Capital before the fund was wound down when he joined Berkshire Hathaway.

Berkshire is not alone in buying Liberty Global shares.

Lone Pine Capital Management and Point 72 Management, the recently re-named family office of Steven A. Cohen, also built stakes in Liberty Global's A Shares. Lone Pine, meanwhile, doubled its investment in Liberty Global Class C shares to 21.6 million shares, or 3.79% of the company's outstanding stock.

Other hedge fund's reporting stakes in Liberty Global Class C shares included Tiger Global Management, Third Point Capital Management and Coatue Management.

Liberty Global A Shares have fallen nearly 4% year-to-date. 

Coatue Presents Liberty At Sohn

If Netflix (NFLX) succeeds in expanding in Europe, Liberty Global may see the benefit of increasing subscribers and higher-cost service bundles, Philippe Laffont of technology and media-focused hedge fund Coatue Management, said in a presentation at the Ira Sohn Investment Conference earlier in May.

Laffont highlighted Liberty Global as a stock that will benefit from growing broadband and wireless usage in Europe, and savvy management of the company's capital. Laffont also noted that consolidation among cable and wireless providers in Europe could ultimately put the company in the hands of Vodafone, AT&T, or Comcast.

Currently, European markets are well behind the United States when it comes to streaming video usage. While Netflix shows such as House of Cards and Orange Is the New Black have created a sensation in the U.S., the same is not true in key European markets such as Britain. "That will change very quickly with Netflix," Laffont said of Netflix's international expansion.

Laffont added at the Sohn Investment Conference that he believes Liberty Global is best positioned to benefit. He also described Liberty Global as a fundamentally cheap stock.

Currently, the company generates about $4.4 billion in un-levered free cash flow, which Laffont believes can grow at between mid-teen to mid-20% rates depending on Liberty Global's share repurchase activity.

With 5% revenue growth, Coatue forecasts the company's earnings before interest, taxes, depreciation and amortization, or EBITDA, to grow 8% annually. That EBITDA growth, given Coatue's forecasts of capital expenditure, would yield 15% free cash flow growth, Laffont said. Finally, depending on Liberty Global's share repurchase activity, free cash flow per share growth could reach 25%, according to Laffont.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs