Why I Am Long Rogers and Bell

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( TheStreet) -- Earlier this week in a TheStreet article, I discussed two media stocks I would sell -- Sirius XM ( SIRI) and Netflix ( NFLX). I mentioned several media stocks I own and am bullish on, noting that I would cover them in future articles. For the sake of time and space, it's probably best to bring these stocks up individually or in pairs over the next week or so. In the present article, I start with Canadian media and telecommunications giants Rogers ( RCI) and Bell ( BCE).

I discount NFLX and SIRI, in part, because they do not score high, or at all, on the following criteria:
  • Massive and/or rapidly growing revenue
  • Multiple, diverse streams of revenue
  • Multi-platform delivery of premium content
  • Direct control over premium content
  • Ubiquity
  • In the ever-expanding universe of media stocks, I have the most confidence in RCI and BCE. First off, I keep a majority of my portfolio in dividend-paying stocks that are still growing and have the potential to grow at even more rapid clips in the future. Both Rogers and Bell recently increased their dividends and have relatively long histories of doing so. In terms of growth, each company's annual report deserves your attention and shows modest to robust revenue increases.

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    First, consider the latest from Bell:
    Total operating revenues for BCE were $4,910 million in Q3 2011 and $14,331 million in the first nine months of 2011, representing increases of 8.7% and 7.0%, respectively, compared to operating revenues of $4,517 million and $13,390 million in the same periods in 2010.

    And, from Rogers:
    Generated revenue growth of 2% at Wireless, 4% at Cable Operations and 10% at Media, with consolidated annual revenue growth of 2%. Adjusted operating profit grew 2% to $4,716 million with adjusted operating profit margins of 37.9%.

    While the financial media, even in the U.S., has sufficiently publicized the foothold Rogers and Bell, along with Telus ( TU), have on the wireless industry in Canada, it has neglected coverage of how both companies continue to leverage their telecommunications' dominance by expanding their respective and collective media empires. The following excerpt from Rogers' annual report fuels the majority of my bullish sentiment towards both companies:
    Rogers announced that it, along with Bell Canada, is jointly acquiring a net 75 percent equity interest in Maple Leaf Sports and Entertainment ("MLSE") being sold by the Ontario Teachers' Pension Plan. The investment advances Rogers' strategy to deliver highly sought-after content anywhere, anytime, on any platform across our advanced broadband and wireless networks and our media assets, while continuing to strengthen and enhance the value of our Sportsnet media brands.

    "Sportsnet" refers to the series of regional sports networks Rogers owns and operates across Canada. Bell owns and controls The Sports Network, Canada's version of ESPN. Once the MLSE deal closes, Rogers and Bell will enjoy majority, joint-ownership of the Toronto Maple Leafs, LeafsTV and other sports franchises and venues in Canada. Rogers already owns the Toronto Blue Jays, while Bell should be able to keep its minority stake in the Montreal Canadiens.

    Three things astonish me when I review the Rogers and Bell sports, media and entertainment stables:
    1. It almost makes the primary revenue generators, such as wireless and cable, appear insignificant going forward.
    2. Given the scope of these two companies, I always tend to leave something out (e.g., Bell's recent acquisition of Astral Media).
    3. There is no way any company could pull this off in the U.S. And I heard some guy on Fox News call Canada "socialist." Go figure.

    Have another look at the five criteria I present at the beginning of this article. You can put a checkmark next to each point. Revenue are already massive, diverse, synergized and growing with potential for factors like continued smartphone (or, as Bell calls them, "superphones") adoption, increased wireless data use and the MLSE deal to provide an even bigger boost to revenue going forward. Both companies have embraced the notion of TV Everywhere, providing access to their customers on a wide range of digital devices.

    As Rogers notes in its annual report, it looks to take control of Canada's most valuable content. Bell shares that goal and is firmly planted, to the loose and far extent the law will allow, on the same page with its apparent "rival" Rogers. Between the two of them, these companies directly own or control countless products, services and experiences Canadian consumers use and take part in every single day.

    Millions of Canadians get their phones, cable service, Internet service, news, sports, weather and entertainment from Rogers and Bell. They watch sports in venues either owned or sponsored heavily by the two companies. And there's a good chance that Rogers or Bell own the teams Canadians watch in those arenas, particularly in Toronto and Montreal. Regulators would simply not allow anything even close to that size and scale to take place in America.

    Both RCI and BCE continue to flirt with the 40.00 level. Rogers reports earnings later this month. Bell is on deck in early May. If each can settle and sustain above 40.00 between now and earnings, I expect considerable upside through the first half of the year, provided favorable earnings and guidance.

    I view both as long-term plays. Therefore, if earnings trigger near-term weakness, I will step up my already regular-scheduled buying activity.

    At the time of publication the author was long RCI and BCE. Positions may change at any time.