A Steal of a Deal…

This week, I’m going to introduce to you a stock I like so much I’ve been adding it to my portfolio for the last few years.

I started buying PRIMEDIA (PRM) when it was trading at just around $1.00 a share.

Believe it or not, it was paying a better than 30% dividend.

Since that time, I’ve recouped most of my investment in the dividend, and been able to capture some impressive capital gains too.

I’m up almost 400% on this trade already… but there’s still lots of room to run.

PRIMEDIA’s business is quite simple.  They produce some very useful magazines.  I’m sure you’ve seen them in the stores.

They publish magazines focused at the apartment rental and real estate markets.

If you’ve ever looked for a place to live then you’ve probably used one of their guides.

Now home and apartment hunters aren’t simply picking up these printed guides.  They’re also going to the web to do their research.

Online, PRIMEDIA owns some of the most popular web destinations like apartmentguide.com and Rentals.com to help with online searches.

The company makes its money through advertising and sales of ad space to apartment owners and other real estate professionals.

PRIMEDIA distributes almost 15 million free guides and directories a year.  And these guides show up in 28,000 different retail locations.  Needless to say it’s a pretty smart business model.

Why do PRIMEDIA’s Customers keep coming back? The answer is simple they get results.

Their products are simple and straight forward.  No confusion here.  They publish a magazine to help people find an apartment.  Their other magazine helps people find a home.  They publish the magazines and give them away free!  Who doesn’t like free stuff?  And when you pick up a magazine they’re easy to use.

So who are PRIMEDIA’s Customers?

They’re the apartment owners and real estate agents.  They always have a vacant apartment to fill… or a home to sell.  So every month they send PRIMEDIA a check to advertise their apartments and real estate.

The stream of revenue doesn’t end.  And that’s great news for PRIMEDIA.  Month after month, year after year, they deliver needed customers to apartment owners and real estate professionals.  Simple, efficient, and profitable.

How profitable is PRIMEDIA?

Let’s look at the financial numbers…

The third quarter numbers were announced a few weeks back, and it was a strong one for the company.  Total revenue reached $58.4 million, and their EBITDA was $17.1 million.  Not bad for such a small stock.

Net Income $6.9 million and the company was able to retire another $6.9 million in long term debt.

The company has $4.7 million of cash on hand and $212 million of debt.  The numbers don’t bother me much because the company is cash flow positive.

Once again, the company’s board authorized the payment of a $0.07 quarterly dividend.

The management team doesn’t give forward looking estimates, and there aren’t any research analysts who cover the company.  Despite this lack of information, I see the company continuing to hold the status-quo of generating big revenue, and solid cash flow.  The nice fat dividend is also a great bonus for shareholders.

PRIMEDIA is a stock most investors are overlooking… and you should be adding it to your portfolio right now!

There are a number of reasons I like PRIMEDIA as an investment:

Undervalued Company – PRIMEDIA currently trades at a P/E ratio of 8.3x.  This is dramatically lower than the stock market as a whole who sports a P/E of around 15x

Robust Dividend Yield – The company pays out a dividend of $0.28 per year ($0.07 per quarter).  With the stock price hovering around $4.40 the company has a yield of 6.3%.  Not bad considering the bank pays less than 1%!

Big Insider Holdings – The biggest holder of PRIMEDIA stock is Kohlberg Kravis Roberts & Co.  They hold just over 58% of the shares outstanding.  With a big holder and professional manager like KKR, the company is sure to be run properly.

Chart courtesy of StockCharts.com

Exciting Industry Exposure – PRIMEDIA is in the apartment rental and real estate sales industries.  They are focused on the marketing side of things.  So as the real estate market recovers, this stock is sure to grow too!

Technically, the chart is a screaming buy…

I see a number of positive indicators that will help push the stock price higher in the coming months.

Here’s what I’m focusing on:

First the long term averages… the 200 day moving average is in a nice upslope, and has been throughout 2010.  It’s a long term signal that the stock is heading higher.

After dipping in mid year, the intermediate term moving averages (65-day) started to climb in late September and has been on a rally ever since.

Best of all, it crossed over the 200 day moving average to the upside in late October… yet again another positive indicator for the stock.

That brings us to the short term moving average… the 20 day.  This one looks a little crazy.  You can see it really jumped around in December.

Despite the big retracement, the stock is now trading above the 20 day moving average… it’s a good area to establish a position.

ACTION TO TAKE

If you like what you’ve read, remember to do your own research. Buy shares of PRIMEDIA (PRM) up to $6.00 per share.

 

Prices as of December 31, 2010
The “Recommended Price” is as of the date and time of the recommendation (adjusted for splits and dividends), you may pay more or less.  “Buy-up-to” means don’t pay more than this price for the stock.  If you can get it cheaper, then great!  “Hold” means hold if you own it, but don’t buy it if you don’t.  “Sell” means sell.  Remember to consult your investing professional before making any trade or investment. And remember all investments have some risk.