My best share to buy right now

This Fool explains why he believes this FTSE 100 company is the best share to buy right now based on its valuation and potential.

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My best share to buy right now, and a company that already occupies a commanding position in my portfolio, is broadcaster ITV (LSE: ITV).

I think the market has unfairly punished this business over the past couple of years. Even though the firm faces significant pressure from international streaming giants, which are chipping away at its market share, the enterprise is fighting its corner.

Revenues from advertising are set to hit a record for 2021, and the business is investing heavily in its ITV Studios division. I think these qualities should underpin the company’s growth in the years ahead. On top of these tailwinds, the business is also trading as a relatively undemanding evaluation.

These are the primary reasons I think the organisation has fantastic potential over the next five to 10 years. 

One of the best shares to buy now 

Whenever I start looking at a potential investment, I always try to understand its negatives. To put it another way, I want to understand any risks the company faces and why investors may be selling the stock. 

When it comes to ITV, it seems as if there are a couple of reasons why investors might be avoiding this stock. First of all, the company is fighting for market share with the likes of Netflix, Disney and Amazon. These organisations are significantly bigger than the domestic business, with much deeper pockets. They can afford to spend more on content and marketing their services to new consumers.

They also do not rely on advertising spending to generate income. ITV’s second-largest income stream is advertising income, which can be cyclical. Indeed, in 2020, advertisers pulled their spending to preserve cash during the pandemic, which sent revenues at the group plunging.

They have since recovered, but there will always be a risk that impulsive advertising spending could hit the group’s top and bottom line. By comparison, the streaming giants do not have to worry about flighty cyclical advertising revenues. 

Digital media 

As well as having to compete with these media giants, ITV has also been struggling to develop its digital strategy. While the company is heavily reliant on its traditional media business, it has been boosting investment in the online business to try and improve awareness and customer engagement. This strategy is working, but the enterprise is still predominantly a terrestrial broadcaster. 

ITV faces some challenges. However, I believe it is the best share to buy right now because it looks as if the market undervalues its potential. 

The ITV Studios business now generates more than half of its revenue. This division gives the company a toehold in the international content production market, which is booming.

It also means the corporation has exposure to the vast marketing budgets of its competitors. As such, the American giants’ attack on the firm’s market share is not a disaster for the business. It should benefit from some of the additional production spending.

Advertising 

Traditional media channels such as TV still feature prominently in advertisers spending plans. Despite warnings that the sector would suffer as the world moves online, spending on traditional media channels has only continued to increase.

Television advertising works, and media agencies are well aware of the power of this medium. The very fact that ITV’s ad revenues rebounded so quickly after the pandemic and are on track to reach an all-time high last year is an excellent example of the robustness of this market. 

Further, the group is making significant progress in expanding its online business. According to the company’s third-quarter trading update, online viewing was up 39% in the third quarter of last year.

The corporation is capitalising on this growth by developing its own digital media strategy. It has rolled out an initiative to help advertisers launch on its online platforms through a media buying venue called Planet V. This will help the business reduce its dependence on outside agencies, hopefully improving profit margins. 

The business has also agreed on partnerships with other media companies, including Virgin Media, to roll out its digital ITV hub platform on set-top boxes. This should increase consumers’ visibility and give the group more sway with advertisers. 

Best share to buy right now for value and growth 

ITV will never be able to take on the likes of Netflix. The firm is just far too small, and it is miles behind in its online streaming efforts. 

Nevertheless, it is making headway with its own strategy. The company’s digital presence is expanding rapidly, which will help it reduce its exposure to traditional media channels.

At the same time, the company is doubling down on its production business. This could be a real area for growth over the next couple of years. International media organisations are pumping billions into the UK economy’s media sector, and ITV stands to grab a significant share of this spending, thanks to its experience and brand visibility. 

Considering all of the above, I think the market is spending too much time focusing on ITV’s challenges rather than its potential. This presents an opportunity for long-term investors like myself.

Undervalued

At the time of writing, shares in the enterprise are trading at a forward price-to-earnings (P/E) multiple of just 8.3. That appears outstandingly cheap. Many of the company’s international peers are trading at P/E ratios of 20 or more. 

Based on the valuation discrepancy, and the company’s potential over the next few years, I think this is the best share to buy right now. 

That is why I already own the stock and would be happy to buy more for my portfolio today. As the business returns to growth, I believe there is a high chance the market could re-rate the stock to a higher valuation. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Rupert Hargreaves owns ITV. The Motley Fool UK has recommended Amazon and ITV. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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