I first off want you all to take a long, hard look at this 10-year chart on Time Warner (symbol: TWX on the NYSE.)

What did you see?  If you looked carefully, you saw that I have put a red circle on the point at which Time Warner was at its peak in the year 2000.  The stock back then was at about $100 per share.  I have also put a blue circle on Friday's close - at about $19.50 per share.

This stock went down over 80% in the last seven years!  What in the world happened?  There are several things that happened.  First was that in the year 2000, the entire market reached its peak at about the same time.  We started to head into an ugly bear market in the year 2000.

Anything technology had led the market to its peak in the 1990's, and anything related to technology from 2000 on was to get severely punished whether or not that particular tech company was indeed guilty of the crime of lousy earnings.

Time Warner was not directly guilty of it, but the over-hyped company that it merged with was.  This company was AOL (America On Line.)  The merger was a disaster.  Everyone, at the time , got caught up in the hype of the internet as well as the potential amount of money there was to be made, and Time Warner was no exception.

A solid company like Time Warner merged with the new kid on the block, AOL.  This merger was announced right around the time that is circled in red on the chart above.  After that, of course, we had the terrorist attacks on 9/11/01 and the accounting scandals which later followed.

I am writing you right now to tell you that I believe that Time Warner has been punished enough and is a very good buy at $19.50.  Buy it and hold it.  This is an investment.  If you choose to play options on it, make sure that they are long-term, deep in the money options.

I want to reiterate that every single stock idea that I have given you has gone higher after my having recommended it.  I believe that Time Warner will not be an exception to this rule.  I do, however, want to say what I always say, which is that I will not be right 100% of the time. However, I will be right more than I will be wrong.

Time Warner is a family of companies comprised of such companies as AOL, HBO, Time Warner Cable, Turner Broadcasting System, New Line Cinema, Warner Bros. Entertainment, and Time, Inc.  They, of course, have various other investments in other companies, but the group that I mentioned above is how they keep the lights on.

Overall revenues last year rose by over 4%.  In their family of companies, the growth mainly came from Time Warner Cable and their Networks (HBO & Turner Broadcasting System.) Revenues in these two areas increased 34% and 7% respectively.  Time Warner's PE ratio is about 12.5.

Just as a point of comparison, Comcast Cable has a PE ratio of about 32.  In other words, you are paying a lot more for the earnings of Comcast than you are for Time Warner's.  I know that they do not have the same exact business models, but I still believe that Time Warner is undervalued at this price, and the comparison is still valid.

I think that Time Warner will either exceed or come in on the high end of their earnings projections when their next earnings announcement comes out in early May; stay tuned.

I don't know what else to say except what I normally say which is, until the next time, folks , spend your hard earned money wisely.




Jason Jovine
Chief Investment Officer
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Tuesday, March 20

8:30 - Housing Starts: Concensus 1440k, Building Permits: Concensus 1560k
 
Big Picture:  Housing starts have fallen 38% from the 33-year high of January 2006.  As mortgage rates rose, underlying demand and speculative investment faded.  As sales declined, inventory grew and strong price growth turned to declines.  The correction for the inflated housing market was expected (and needed), but with a more gradual decline.  Fixed long term mortgage rates are now in the low 6%'s, and downward price pressure on homes leave sales finding some stability as a return to positive contruction waits for the huge supply of unsold homes to be thinned.  The National Association of Realtors expects the bottom in housing starts in Q1 2007.
 
Thursday, March 22
 
8:30 - Initial Claims: Concensus 325k
 
Big Picture:  Initial claims broke above the remarkably tight range held in the 4-week average (306K-318K) over the holiday period as the new year brought an 11-month low in January and a spike to 359K in February.  The recent levels suggest some loosening in the labor markets as the 4-week average has reached a 16-month high.  Continued claims are on an upswing as well, with the weekly level at a 14-month high.  Initial claims provide a nearly real time read on the labor market.
 
10:00 - Leading Indicators: Concensus -0.3%
 
Big Picture:  Six monthly declines in 2006 reflect the weaker economy in late 2006 as the 6-month growth fell to a -0.8% low in July, but has now returned to the black.  Over the last 16 years, the index correctly signaled the 1990 and 2001 recesssions, while providing a false signal during the 1995 soft-landing.  The recession alarms go off when the cumulative 6-month decline exceeds -1% amid a string of three or more consecutive monthly declines.  No recession warning bells yet.
 
Friday, March 23
 
10:00 - Existing Home Sales: Concensus 6.35M
 
Big Picture:  Higher mortgage rates and reduced demand have severely softened the housing market after the record high of June 2005 resales.  30-yr mortgage rates reached a 6.8% high in June 2006 and have fallen off considerably since, but the huge amount of unsold inventory reached a decade high in October and will continue to steer the yoy decline in prices.  The downward trend appears to be stabilizing after a severe correction, which followed years of record growth.  Falling long term mortgage rates, lower prices, and improving employment and income growth provide support and suggest a bottom is now forming.  Annual price growth has been in decline since August.  Existing sales include condos/co-ops, which make up about 1/8 of the total.
 
Source:  www.briefing.com