John Malone Has Warren Buffett Beat

John Malone with his attorney, Kevin Abrams. John Randolph/Reuters/Landov.

Have John Malone’s investments outshone those of the stock market guru?
Most investors have probably not heard of Dr. John Malone.  His background begins at the famous Bell Labs at AT&T in the R&D department.  In the late 1960s, he joined legendary management consultant firm McKinsey & Co.  He burst onto the scene of the cable television industry in its infancy, when cable pioneer Bob Magness hired Malone to be the CEO of the growing Tele-Communications, Inc.
There, he proceeded to pioneer innovations and growth initiatives that effectively made the cable industry what it is today.  Liberty Media was a spinoff of TCI that Malone controlled. He has since leveraged his knowledge and experience into many other disciplines, resulting in one of the greatest investment portfolios of all time.
John Malone has several core principles.  He looks for operating synergies, so that merging companies are able to benefit as a combined entity.  He likes to spin-off businesses so that their value can be unlocked.  John Malone is well-versed in tax law, so he is able to avoid diluting his and shareholder value via taxation.
John Malone either installs great CEOs at companies he buys or, like Warren Buffett, leaves great management in place.  He knows how to manage debt so as to use it to his maximum advantage while not placing the underlying business at risk of default.  He also sits on the board of many companies he buys.
He tends to favor businesses with lots and lots of cash flow, like Carl Icahn can once Icahn turns them around.  He uses that cash flow to repurchase stock so as to enhance shareholder value, unlike Buffett, or to draw down low-cost debt to further finance growth.
Malone’s central entity, Liberty Media, has had multiple tracking stocks over the years.  If you want to invest alongside him, I’d suggest you buy each of the tracking stocks, because I think they are all great buys.  You can also buy shares of companies he purchases.  For now, let’s examine his tracking stocks.

Liberty Media Corporation (NASDAQ:LMCA)

Liberty Media Corporation (NASDAQ:LMCA) holds positions in a number of well-known companies, including but not limited to, The Atlanta Braves (100%), True Position (100%), Charter Communications (NASDAQ: CHTR) (26%), Live Nation Entertainment (NYSE:LYV) (26%), MacNeil/Lehrer Productions (67%), Sirius XM (NASDAQ:SIRI) (53%), and small percentages in other companies.  These assets have a value of roughly $6.1 billion, and low-cost debt amounting to $4.7 billion.
The best way to evaluate any Liberty stock is not by earnings per share, but by consistent adjusted EBITDA, or cash flow. Liberty Media’s cash flow typically runs between $250 million and $350 million quarterly, or $1 billion and $1.4 billion annually.
At a stock price of $130.88, the stock trades at an EV/EBITDA ratio of 16.67, a very reasonable number considering the company’s assets.

Liberty Interactive (NASDAQ:LINTA)

Liberty Interactive (NASDAQ:LINTA) consists of multiple online and e-commerce businesses that Malone has acquired over the past ten years.  He has a knack for discovering the leading online brand, buying it up, and letting management continue to generate cash flow.
Liberty Interactive owns 90% or more of,,, Evite, The Right Start, Provide Commerce, QVC, Commerce Technologies, and Home Shopping Network (NASDAQ:HSNI)  (38%).  It exposes shareholders to the leading online brands in outdoor equipment, fitness, costumes, event planning, baby products, flower delivery and home shopping.
Liberty Interactive stock typically sees adjusted operating income in the $400 – $600 million range quarterly.  It trades at $28.55, or at an EV-EBITDA ratio of 9.74, even less than its peer.

Liberty Ventures (NASDAQ:LVNTA)

Liberty Ventures (NASDAQ:LVNTA) is yet another tracking stock.  It holds positions in a bunch of public companies, including Expedia (NASDAQ:EXPE) Interval Leisure Group (NASDAQ:IILG), (NASDAQ:TREE) and TripAdvisor (NASDAQ:TRIP).  The stock is a spin-off of Liberty Interactive but its financials are embedded within its predecessor.
That, by the way, is the price you pay of owning Malone stock.  The financials can be hard to keep track of, and many of them keep splitting into other stocks.  It’s difficult to compile his exact returns over the years in all his businesses.  However, what we do know is that his investment in Tele-Communications, Inc. resulted in a 1,000% return; his $12,500 investment in struggling preferred shares of Sirius XM is now worth $6 billion; his investment in DIRECTV (NYSE:DTV) turned $10 billion into $13.5 billion – the list is amazing.
Lawrence Meyers owns shares of DTV.

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