News Corp.: Most Undervalued Stock Is Now a Buy

NEW YORK (TheStreet) -- Whenever I write about News Corp. (NWS) I get yawns from readers.

It doesn't matter whether I'm bullish or bearish. It doesn't matter whether I'm talking about politics or avoiding the subject. News Corp. is just something investors don't want to read about, a company they're tired of. The stock has been a laggard so long, they're past hearing.

But bear with me. I'm going to try to make you some money here.

Since announcing on June 28 it will split into two units -- print and broadcasting -- NWS is up 13.5%. I think this wildly understates what is possible once the split is finished.

The publishing assets took a $2.9 billion writedown in its June quarter, notes Yahoo! Finance, but they're going to be dumped in the break-up. What you're left with is a vertically integrated broadcasting company much like Disney ( DIS).

Count Fox, the National Geographic Channel and Dow Jones among its assets. There's a movie studio, a sports division, television production, plus TV channels, cable networks and satellite broadcasting assets necessary for distribution.

This is what the old movie studios had, back in the day. What happens when you put a Fox TV show or movie on a Fox broadcasting or cable channel? You pay yourself and you make money every time.

My own back-of-the-hand estimate is that NWS makes, in an ordinary year, about $3 billion in net income. Its current market cap is near $60 billion, but some of that is going into the publishing unit. Say they claim that's worth $10 billion -- there are profitable book publishing and magazine units in there, as well as The Wall Street Journal.

Now you've got roughly $3 billion in profit on a market cap of $50 billion. Sell your shares in the publishing company the moment the spinoff happens, and you have a happy dividend, plus a company that looks more like Disney at a lower multiple.

Then there's the potential.

As a broadcaster, News Corp. doesn't innovate. It copies. This is not a criticism. News Corp. sees what is succeeding, then gives it a tweak that makes its operation more profitable. Fox News only looks like a clone of CNN. It is, in fact, a talk radio station, which means it costs much less to run, and is much more profitable. You don't really need the print assets to feed what passes for a news hole there.

The same is true across the board. Fox is copying the other studios with a range of Fox-based cable networks, like FX and Fox Movie Channel, which it can load free with shows from its library. All that cash flows down to the bottom line.

Fox can do with its sports channels the same thing ESPN has done with its sports channels -- you do know that sports represents about 40% of your cable bill? Well, ESPN has figured a way to get a cut of your Internet bill, too, as Frank DeFord explained recently for NPR. Fox can copy that. Again, ka-ching.

With the print publishing gone, Fox can make another run at the rest of BskyB, maybe even acquire News Corp.'s Dish Network ( DISH). That's more distribution for existing programming, guaranteed carriage for the new Fox cable networks, plus a cut of every other studio's action. Also, they could kill Dish's ad-skipping technology, as described by Bloomberg.

Assuming the new company (I'll call it Fox Inc.) learns these lessons about the key being distribution, it can make another run at the Internet, using the sports model, and find even more money, with very little effort. The Fox name, it has been said, stems from William Fox, a Hungarian-born entrepreneur who was seeking the same synergies when the Great Depression intervened.

With both Rupert and James Murdoch discredited in the phone tapping scandal, detailed last year by the BBC, Chase Carey is going to be running this company and -- perhaps more important -- he'll likely choose his own successor. That successor will be someone from the movie or TV or cable business, and if that person is not named Murdoch, the stock is going to get another jolt of rocket fuel. The Murdoch family will be left licking wounds but counting money, not a bad trade.

For all these reasons, NWS is the most undervalued stock in the market right now. But if you don't want to hear about it, that's fine, too. More profit for me.

At the time of publication, the author had no investments in the companies mentioned in this article.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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