NEW YORK ( TheStreet) --Whitney Tilson riffed a solid line on CNBC the other day: When the story is the same and the price is lower -- buy more.Tilson made the comment in support of his continued bullish conviction toward J.C. Penney ( JCP) and Netflix ( NFLX). He considers both value plays.
If you were to look at balance sheets and forward P/E ratios, you might come to the opposite conclusion. When you dig for value plays, though, you need to do it on the basis of a company's long-term story, not the numbers. Is it weaving a reasonable narrative? Does it have the pieces in place to execute and sustain? Consider Sirius XM ( SIRI). Because its P/E has tanked to more sensible levels, some investors might start referring to it as a value play. That's a surface-scratch analysis. The P/E dropped as the stock price dropped. It was not because of any meaningful uptick in profits. When a stock consistently trends down, as Sirius XM has since April, there's generally a reason. And that reason is clear -- Sirius XM equals dead money in the eyes of investors. The company's own CEO thinks the stock "sucks." Folks such as myself and fellow TheStreet contributor Richard Saintvilus have been hammering home the reasons to Sirius XM loyalist longs for some time now. Leaving aside a lack of innovation and billions of outstanding shares, egomaniacal men acting like children hold the company and stock back at this point. In a perfect world, Mel Karmazin resigns amicably and relinquishes control of Sirius XM to Liberty Media ( LMCA). That makes the most sense, as, under that arrangement, satellite radio might actually evolve into something relevant. Integration into Liberty's diverse, growing and cross-platform stable can only help the cause. Instead, Karmazin effectively forces Liberty to strong-arm the situation, which, ultimately, harms the future of Sirius XM's business. A businessman through and through (not an entrepreneur), Karmazin simultaneously grew revenue, generated cash and turned his company into a dinosaur. It will end up in the single-occupancy museum of satellite radio if somebody does not act soon. By the time the Mel and Malone dog and pony show wraps up it might be too late to activate any real change. It probably already is. Look around the market. Given the recent weakness, you can find plenty of stocks with P/Es falling even harder than Sirius XM's. At last check, Research in Motion ( RIMM) flounders at a ripe current P/E ratio of 4.5 with the stock finally ending up where most of the free world predicted -- in the single digits.
That's not value. That's the definition of a falling knife , straight outta the urban dictionary. Don't fall for the meaning the glossary of your old finance textbook assigns to "value." Blind faith in that outdated tripe is enough to get you killed. That said, often a low P/E should not send off red flags. Instead, the intuitive reaction might be right. Cases in point: Time Warner ( TWX) and Viacom ( VIA.B). It's nothing short of petty larceny that both stocks sport forward P/Es close to 9. You have two media empires that control some of the most premium content on Earth. They have yet to fully unleash their multiplatform power. And, as with an investment in Disney ( DIS), you benefit from built-in hedges in both. Disney provides the ultimate example of this. If Studio Entertainment is soft one quarter, you can count on one of the company's other four business segments to offset that weakness. While not quite on the same scale as Disney, Viacom recently reported pretty solid earnings despite considerable pressure at Nickelodeon. Other aspects of the business, such as tweaks at Paramount Pictures, helped pick up the slack. Plus, Viacom and Time Warner pay dividends that have histories of increasing. That's certainly not the sign of a vulnerable company such as J.C. Penney, RIM or Sirius XM. This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.