NEW YORK (MONEY Magazine) -
After cable company Comcast bid for Disney, Wall Street dumped the suitor's stock, creating an opportunity for bargain hunters. And Iron Mountain, the leader in the safekeeping of files and materials, is thriving in the digital world.
Recent price: $28
Comcast's March bid for Disney marked another episode in the debate over whether distributors, whose wires carry TV signals into our homes, or programmers, such as ESPN, hold sway in the media world.
Investors feared that Comcast's offer to buy Disney was an admission of weakness, and though the bid lapsed, Wall Street remains spooked. The stock of the best-managed company in the cable industry, Comcast (CMCSK: Research, Estimates), trades 20 percent below February's high, making it alluringly cheap.
The real story at Comcast is how the billions of dollars spent wiring America with fiber-optic cable is paying off as consumers race to sign up for new broadband and phone services.
So while the Disney drama grabbed headlines, Comcast notched 10 percent sales growth for the first quarter of 2004. Operating income more than doubled, to $702 million, and the company says it should generate $2 billion in free cash flow this year.
Comcast's strength is its ability to piggyback other offerings -- such as phone service -- onto its fiber network, says T. Rowe Price Value manager John Linehan.
"The incremental cost for it to deliver telephony is minimal," Linehan says. (Comcast plans a national rollout of Internet telephony in 2005.)
At twice the size of the next largest cable operator, and with a granite balance sheet, Comcast is well equipped to press its advantage. Yet the stock, at $28, trades as if it were an also-ran. Call it the Disney hangover, and grab some shares before it goes away.
Recent price: $43
In this digital age, you would think a company that provides paper document storage would be going out of business. But thanks to the Sarbanes-Oxley Act -- which, among other things, requires auditors to retain financial papers for seven years -- accounting firms need a secure place to keep all this stuff.
Boston-based Iron Mountain (IRM: Research, Estimates) has been in the storage business for more than 50 years, holding everything from photographs to health records to legal files in warehouses across the country.
The $1.5 billion (sales) company now accounts for half of the global file-storage market. And analysts forecast that this industry is expected to grow at an 8 percent annual pace, reaching $3 billion by 2007.
Besides storing files and goods for clients like Bill Gates (his collection of historical photos) and 350 of the Fortune 500, Iron Mountain offers digital storage, which backs up e-mails and other electronically transmitted information. Recent acquisitions in the U.K. and Germany have made it the top document-storage firm in those markets.
"All this investment is set to pay off," says Vincent Gallagher of Needham funds, which owns a total of 150,000 shares.
At $43, Iron Mountain trades for 13 times earnings before interest, taxes, depreciation and amortization charges. We think that's pretty appealing for what Morningstar stock analyst Fritz Kaegi describes as "a predictable business with very good visibility for revenue over a long period of time."