Should CBS Be In Your Portfolio?

With shares of CBS (NYSE:CBS) trading around $47, is CBS an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

CBS operates as a mass media company in the United States and internationally. The company has operations in segments, which include Entertainment, Cable Networks, Publishing, Local Broadcasting and Outdoor. Consumers seek entertainment of various forms and through an array of platforms at an increasing rate. Through its segments, CBS is able to fulfill consumer needs as they continue to update their offerings. As long as consumers around the world continue to look for entertainment and CBS can remain relevant, the company stands to see growth well into the future.

T = Technicals on the Stock Chart are Strong

CBS stock has seen a consistent uptrend since establishing lows during the 2008 Financial Crisis. The stock is now trading at all-time high prices and may continue higher with no resistance in sight. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, CBS is trading above its rising key averages which signal neutral to bullish price action in the near-term.

CBS

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of CBS options may help determine if investors are bullish, neutral, or bearish.

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Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

CBS Options

28.71%

86%

85%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

May Options

Flat

Average

June Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on CBS’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for CBS look like and more importantly, how did the markets like these numbers?

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

27.78%

9.32%

20%

12.07%

Revenue Growth (Y-O-Y)

6.43%

2.99%

1.58%

-3.07%

Earnings Reaction

2.04%

3.95%

1.05%

6.11%

CBS has seen increasing earnings and revenue figures over the last four quarters. From these figures, the markets have been happy with CBS’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has CBS stock done relative to its peers, Walt Disney (NYSE:DIS), News Corporation (NASDAQ:NWS), Comcast (NASDAQ:CMCSA), and sector?

CBS

Walt Disney

News Corp.

Comcast

Sector

Year-to-Date Return

25.18%

31.59%

22.90%

15.63%

24.39%

CBS has been a relative performance leader, year-to-date.

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Conclusion

CBS provides maas multimedia products and services to a growing consumer base across the globe. The stock has been in a strong uptrend for the last several years and is now trading at all-time high prices. Earnings and revenue figures have been steadily increasing, in recent quarters, which has really pleased investors. Relative to its peers and sector, CBS has been a year-to-date performance leader. Look for CBS to continue to OUTPERFORM.

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