Comcast and General Electric have just agreed to a deal for a joint stake in media giant NBC Universal, which is currently a unit of GE. They value NBC at $30 billion.
For some investors like myself, this represents another strong signal that the stock market remains highly undervalued. The reason is that this is a real-time valuation that puts the network at almost 2 times annual sales ($30 billion/~$15 billion annual sales), while the average media network today is selling at just over 1 times sales.
Why are these companies valuing NBC at twice the market? Either because NBC is twice as valuable as the average media network, including stalwarts like Time Warner and Disney, (this I doubt) or that the overall market is undervalued.
One of the greatest mutual fund managers of all time, Bill Miller, uses current deals like this and asset valuations from recent bankruptcy filings as a basis for valuation of all his holdings. His record attests to this process.
As I explained in my earlier post, Time to Put Money to Work, there remains significant upside to this market based upon its current valuation. The bottom line is that the stock market's value is whatever investors are willing to pay for it. And today, for GE and Comcast, that is a lot more than what it costs.
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