2 Undervalued Streaming Stocks

We recently took a look at the streaming landscape. With the combination of a huge customer base and strong revenue per customer, Netflix has built a solid foundation that is growing rapidly. The firm's streaming revenue base gives it adequate scale to compete for the best content. But other media players are quickly adapting to the streaming fight, with Disney and Warner clearly pushing hard to replicate Netflix's direct-to-consumer position. ViacomCBS has also begun to pivot hard toward the streaming market with its broad array of content now under the Paramount+ umbrella.

We think two stocks in the space are promising today.

Our first pick is ViacomCBS. Recombined, the new firm has the content breadth and depth to ensure that its roster of channels remains entrenched in any traditional television offering, while also providing plenty of material for Paramount+. ViacomCBS' roster of paid streaming services, which also includes Showtime, has posted strong growth recently, even though the shift from CBS All-Access to Paramount+ only happened in March. The free Pluto TV platform is also growing rapidly. Finally, as movie theaters reopen, the firm's film studio should benefit nicely. We think shares are worth $61 a piece.

Next up is Discovery. Discovery has long been known as a firm that produces and owns unique content with proven appeal to audiences across cultures and languages. As a result, its traditional networks have wide distribution, reaching 85 million U.S. households and more than 200 million internationally. The launch of Discovery+ earlier this year leaves the firm a bit late to the streaming game, but it now has an outlet for fans who don't want traditional television service. The plan to join forces with WarnerMedia should provide opportunities to accelerate streaming adoption as the new firm crafts bundled offerings. We assign Discovery’s shares a fair value estimate of $42.

Sector director Mike Hodel provided the research behind this segment.