Buying more TWX and INTC

The reaction to Time Warner's decision to try to turn AOL into more of an ad-based asset would seem to be positive, but not according to the stock market. I've always told my finance students that AOL is, if anything, a negative drag on Time Warner (in other words that this is an asset with negative net present value). The choices were to spin it off, sell it, or try to find a business plan by which AOL would become NPV positive. The management and board seem to have chosen this last option. Given the valuation placed on Google and Yahoo, one might surmise that this would be the option the market would support, as well. However, such is not the case, at least in the short term. Nevertheless, I got a ton of TWX at 16.27, what I regard as a significantly below fair value price (try just about any discounted cash flow model to see for yourself). This undervaluation is compounded when one values TWX's library of media "software," takes into consideration the fact that TWX cash flow is more recession resistant than tech stocks or industrials (earnings growth over the past year was in double digits) and is engaged in an aggressive stock repurchase strategy, which will raise the cash flow per share. If you want more evidence, consider TWX's cable assets and the typical valuation placed on such properties (see Comcast). Speaking of cable assets, TWX is adding assets acquired at a very good price from Adelphia's bankruptcy. Does this mean the stock will turn on a dime and go up? Who knows. The market has its own ceremony in situations such as these (and the ceremony involves a lot more than TWX). At present, the most popular dance tune is sell.

INTC for 18.02? Okay, I'll take it. Based on cash flow expectations, adjusted downward, it is a good buy, and this price allowed me to lower my average cost of INTC to about 18.08. I like these discount days.