Trade: Buying 500 shares of CMCSA at a bid/ask of $60.41 / $61.05.

After the market opens, we will be initiating a position in Comcast (CMCSA), buying 500 shares at a bid/ask of around $60.41 / $61.05. Following the trade, CMCSA will represent roughly 1.30% of the portfolio.

Although the broad market selloff on Friday was tough to stomach, our large cash balance led to significant outperformance, and most importantly, has afforded us great optionality on what looks to be another down day in equities on the open. See our Alert from Friday for where we stood at the end of the week.

As we mentioned on Friday, "Brexit was a worst-possible- outcome for stocks (at least in the near-term), and therefore could offer us the chance to add to the portfolio at more reasonable valuations.” While exercising patience throughout the day on Friday was certainly difficult, it was ultimately the right decision as equities trended lower to finish the day worse than where they began. We believe now is a good time to put some of our cash to use.

We want to be clear, however, that this is a starter position in Comcast as we recognize that not all of the global uncertainty has necessarily been baked into stocks. We cannot reasonably expect the market to correct itself all in one day and we will continue to look for more opportunities, keeping subscribers updated along the way. That being said, we view CMCSA as the ultimate domestic, hedging against a strong dollar and uncertainty in the EU.

Comcast is one of the largest and fastest-growing media companies, benefiting from being the only vertically integrated, diversified media play in the U.S. We believe the company has a key competitive advantage in that it has the opportunity to emerge as a key aggregator of content in an increasingly fragmented media landscape.

Importantly, as content becomes increasingly fragmented, the aggregators will become more essential as curation platforms for consumers. Comcast is a step ahead of the game with its X1 Platform, allowing for a personalized, technologically integrated, and seamless experience in an easily consumable format. The X1 platform is helping to usher in a new age of content consumption that can compete with the experiences of the à la carte services.

Irrespective of how we consume content over the next decade, we cannot do so without access to the "pipe," of which Comcast will be an essential piece. This "pipe" is unlikely to be a commodity in its end state, but rather a value-add, hybrid, collaborative bundle of services, with video being one option. While there are concerns regarding consumers who are "cutting the cord," we believe that Comcast’s integrated solution -- with its standardized protocols, well-developed and consumer- tested in-home hardware architecture, and broad reach -- is crucial to the success of the overarching home connectivity initiatives being launched by some of the world’s leading technology companies. What's more, Comcast’s high cash flow and strong balance sheet will allow it to continually invest in innovative opportunities needed to adapt to the fast-evolving cable industry.

In the near term, we expect continued positive video subscriber net adds and strong broadband net adds to aid Comcast in outperforming its peers. While NBCUniversal is set up to have a difficult 2016 due to tough comps against a strong 2015 film slate, its diversified revenue platform (which includes merchandising and parks) should help offset some of that weakness. We also believe, as we mentioned on Friday, that the Summer Olympics and presidential election will provide strong tailwinds in the back half of the year.

From a valuation perspective, we arrive at our $70 price target through a sum-of-the- parts analysis that assigns a 7.5x enterprise value/EBITDA multiple on Cable EBITDA and 10x multiple on NBCU EBITDA, resulting in an approximate 8x blended 2016 EBITDA multiple for the overall company. Importantly, we view this as a relatively conservative estimate that does not include additional upside from increased X1 adoption, greater ad market share, or Hulu growth (about 33% ownership).


Jim Cramer, Portfolio Manager & Jack Mohr, Director of Research
Action Alerts PLUS

DISCLOSURE: At the time of publication, Action Alerts PLUS had no positions in the securities mentioned.