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Is Discovery, Inc. (DISCK) A Smart Long-Term Buy?

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·4 min read
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  • ^GSPC

Longleaf Partners Fund, a Memphis-based fund under Southeastern Asset Management, published its “Longleaf Partners Fund” third quarter 2021 investor letter – a copy of which can be downloaded here. Longleaf Partners Fund fell 5.70% in the third quarter, while the S&P 500 Index returned 0.58%. The Fund remains ahead of the index year-to-date (YTD), up 16.38% vs. the S&P’s 15.92%. You can take a look at the fund’s top 5 holdings to have an idea about their best picks for 2021.

Longleaf Partners Fund, in its Q3 2021 investor letter, mentioned Discovery, Inc. (NASDAQ: DISCK) and discussed its stance on the firm. Discovery, Inc. is a New York, New York-based mass media company with a $13.9 billion market capitalization. DISCK delivered a 3.28% return since the beginning of the year, while its 12-month returns are up by 29.43%. The stock closed at $27.05 per share on November 12, 2021.

Here is what Longleaf Partners Fund has to say about Discovery, Inc. in its Q3 2021 investor letter:

"We have profitably owned Discovery Communications and Scripps Networks (which merged into Discovery in 2017) multiple times before. We have followed Discovery closely for the last few years and waited to see how the company’s high-quality assets would fit into an increasingly confusing video marketplace. We immediately got more interested in the second quarter of this year when Discovery announced its merger with AT&T’s Warner Media. Warner has top-notch, highly differentiated media assets including the Warner Bros. library, HBO and CNN. When joined together with Discovery’s more niche yet more global assets like Discovery, HGTV and Food, the new company will be a powerful participant in “traditional” media with a much stronger streaming option to compete with Disney and Netflix. We have great confidence that CEO David Zaslav and long-time owner/board member John Malone will navigate this new company to a great position in the years ahead. John Malone is giving up his supervotes to accommodate the merger, a decision benefitting other shareholders and indicating his belief in the deal."

Based on our calculations, Discovery, Inc. (NASDAQ: DISCK) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. DISCK was in 35 hedge fund portfolios at the end of the first half of 2021, compared to 40 funds in the previous quarter. Discovery, Inc. (NASDAQ: DISCK) delivered a 0.22% return in the past 3 months.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. Recently we came across a high-growth stock that has tons of hidden assets and is trading at an extremely cheap valuation. We go through lists like the 10 best growth stocks to buy to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage.

Disclosure: None. This article is originally published at Insider Monkey.