Christopher Mittleman: Undervalued Stocks in an Unappealing Market

Christopher Mittleman presides over the investment firm Mittleman Brothers. The firm’s track record includes an impressive 22% compounding annual return over last 20 years.
Mittleman Brothers manages a portfolio of 10-20 investments. His two stock picks at the May Investing Congress in Las Vegas are each up more than 20% in the four months since.
Mittleman’s latest picks are the following undervalued stocks:
TV Azteca (AZTECACP MM)
A Mexican stock that is the second-largest Spanish language TV producer in the world, and second largest in Mexico with a 32% market share. The company also owns Azteca America, the sixth-largest Spanish language TV network in the U.S.
It has a $1.6 billion market cap. The company did $956 million in sales last year, and has a 36% EBITDA margin.
When formed in 1993, TV Azteca’s audience share only 9.6% in Mexico. It has since more than tripled.
The company has thrived in the face of difficult economic times in Mexico. In 2009, Mexico’s GDP declined 6.5%. Despite that, TV Azteca’s sales rise 1.6%.
The company is in the process of building a new network in Columbia, which should debut in 2014. The new network has a chance to generate an extra $20 million in sales.
Stock is cheap because of poor performance year to date. Ad sales declined 6% last quarter as ratings slumped – particularly for the company’s telenovelas. Ratings are cyclical, however, and Mittleman expects the company to bounce back quickly.
A larger concern could be the potential involvement of Carlos Slim Helu in the Mexican television industry. “Slim,” the second-richest man in the world, is said to be looking at creating a new Mexican TV network that could drive up prices and competition for the likes of TV Azteca.
All those headwinds aside, Mittleman likes the company for its valuation – less than six times EBITDA, cheaper than any other Mexican TV network.
CMIC Holdings (2309: JP)
The original and largest contract research organization in Japan, CMIC did $638 million in sales in 2012. It pays a yield of 2.6% and trades at roughly $13.56 U.S. dollars.
CMIC’s sales have more than doubled since 2007, impervious to the global recession.
The headwinds are the risk of further decline in the Yen and the fact that second-quarter earnings came in below expectations. However, the market overreacted to those earnings and punished the stock more than it should have been. Because it was so beaten down, CMIC shares are now trading at just 4.5 times EBITDA.
As a result, Mittleman says the company has 86% upside.

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