Trading at $570.73 as of June 13, 2001
Dad, the company I want to point out to you this year is one that should warm your heart, because it played a significant part in bringing down your least-favorite president, Richard Nixon. It's the Washington Post Company(NYSE: WPO) and there's a lot to like about it. Here's food for thought:
It's more than a one-product company. There's the flagship Washington Post newspaper (readership: one million-plus), of course, along with its rich website at washingtonpost.com. But there's even another flagship offering: Newsweek -- which reaches more than 3 million. And the company also includes the Washington Post Writers Group syndicate, with its 28-plus columnists; six television stations; Cable ONE, with more than 700,000 subscribers in 18 Midwestern, Western, and Southern states; and Kaplan, Inc., the global leader in test preparation and admissions services, among other things.
One of its directors and major investors is none other than Warren Buffett, a guy you and I both admire a lot. One of the things that probably appealed to Buffett when he began snapping up shares was that the company had been in the hands of the same family for a long time. In recent years Katharine Graham has passed most of the reins of the company on to her experienced son, Donald. (By the way -- now that Mom has finished reading Ms. Graham's truly remarkable autobiography, Personal History, you should read it, too. Her life has been nothing short of remarkable, and her startlingly candid memoir will also teach you a lot about the company and the newspaper business.)
Throughout the '80s and '90s, this company's stock advanced an annual average of 18%-20%, if you reinvested dividends in additional stock. Since the end of 1995, the stock has advanced an average of about 16% per year. Net profit margins top 10%, and return on equity is north of 20%.
Of course, just because a company is impressive doesn't mean it's automatically a great investment. It all depends on its valuation. At first glance, with a price tag in the $600-per-share range, the Washington Post Co. might seem wildly overpriced. That's faulty thinking, though -- a stock price alone doesn't tell you whether it's over- or undervalued.
The company's price-to-earnings (P/E) ratio is a much-less-stratospheric 18 -- less than the current average for stocks in the S&P 500 -- but that doesn't necessarily mean it's a bargain either. It's only a deal if you think it will grow at a rate to justify that P/E ratio and if it provides a margin of safety should the company not meet your growth expectations. Dig a little deeper into this company, though, and see what you think, Dad. At the very least, it's probably worth adding to your watch list. If the price falls a bit more, it will get even more attractive.
If Selena Maranjian were a Spice Girl, she'd be "Anxious Spice." Fortunately, for her sake and yours, she's not a Spice Girl. She does not own shares of The Washington Post Co. To see her complete stock holdings, view her profile. She is the author of The Motley Fool Money Guide.
A Stock for Dad represents the opinion of one Fool and should in no way be taken as the opinion of either The Motley Fool, Inc. or the company in question, or as representative of anyone or anything other than that specific Fool's thoughts. Which can be way out there, so do your homework, and review The Motley Fool's disclosure policy.
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