Why I’d Buy ITV plc Before Pearson plc And Sky PLC

Very appealing

With Pearson (LSE: PSON) (NYSE: PSO.US) having sold The Financial Times to the Nikkei Group for £844m, there are now rumours regarding the sale of its 50% stake in its magazine title The Economist. In fact, Pearson has released a statement saying that it is in discussions with the Board and Trustees of the title regarding a potential sale, which means that it is relatively likely.

Of course, this is rather unsurprising, since for a number of years Pearson has been focussing on educational titles and products, rather than on media. This, it believes, will become a far more profitable space for the company, as it seeks to rejuvenate a bottom line that has been on the slide over the last three years, during which time Pearson’s share price has fallen by a rather disappointing 5%.

Looking ahead, Pearson is expected to increase its earnings in each of the next two years, with bottom line growth of 15% this year and 7% next year being pencilled in. As such, it trades on a price to earnings growth (PEG) ratio of just 1, which is very appealing at the present time and, with profit set to improve as it implements its new strategy, now seems to be a good time to buy a slice of Pearson.

On the up

Similarly, Sky (LSE: SKY) (NASDAQOTH: BSYBY.US) is also a company on the up. Its merger with Sky Deutschland and Sky Italia was a shrewd move that shored up its financial firepower at a time when competition in the media sector is hotting up. And although its bottom line is set to fall by 9% this year, next year is expected to be a very different story, with growth of 18% being forecast by the market.

As such, Sky’s PEG ratio of 0.9 holds great appeal — especially with its continuing to have the most differentiated pay-tv packages in the UK (owing to its sports rights and channels such as Sky Atlantic) and also being on the cusp of a more diversified offering that’s set to include mobile products.

Exceptional performance

However, in the media sector, ITV (LSE: ITV) seems to be an even better buy than Sky or Pearson. Certainly, its shares have performed exceptionally well in recent years, having made gains of 388% in the last five years. And there could be much more to come.

For example, ITV is forecast to increase its earnings by 14% this year and by a further 9% next year. Beyond that, further double-digit growth is very achievable, since the UK economy is continuing to move from strength to strength and, while online advertising has threatened the appeal of TV commercials, the latter remains a key part of spend among major businesses, with even social media companies now advertising on TV.

Whilst ITV’s PEG ratio of 1.4 may be higher than those of Pearson or Sky, with a sound strategy of providing more niche content across a wider range of channels, ITV appears to be well placed to deliver stunning share price growth over the medium to long term.

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Peter Stephens owns shares of ITV. The Motley Fool UK has recommended Sky. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.