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Why I’d buy this beaten-up household name instead of National Grid plc

What goes up, often comes down. So it is with veteran broadcaster ITV (LSE: ITV). It became a must-see stock in the years after the financial crisis but its share price has lost a third of its value in the last couple of years. ITV is the broadcaster that gave Love Island to the nation, how much love should you show it in return?

Broadcast rights

The drop in advertising is the main investor concern as consumers struggle and competition from the internet and on-demand rivals such as Netflix and Amazon Prime grows. Mass advertising no longer works in today’s fragmented market and Brexit uncertainties have also hit consumer sentiment.

ITV has wisely responded by investing in content, with producer ITV Studios offering both diversification and juicy overseas revenues. The group’s latest half-yearly report showed total external revenue down 3% to £1.46bn, despite promising 7% growth in total ITV Studios revenues to £697m, and 5% growth in online, pay and interactive to £112m. These growth figures suggest its strategy is working so far, but has further to run.

Turn it on again

ITV’s share of total viewers is holding up thanks to hits such as Broadchurch and Love Island, and although earnings per share (EPS) dropped 9%, the board did recently hike its dividend 5% to 2.52p. ITV claims to be the only commercial channel that can deliver 5m viewers and also has a growing US business. What it doesn’t currently have is a CEO, with Adam Crozier’s replacement Carolyn McCall transferring from EasyJet in January, after which investors can start to take a view on her tenure.

Consumer ad spend fell 11% across the market in the first half of 2017, which hurts. It also explains ITV’s lowly forecast valuation of 10.3 times earnings. Any recovery will take time: EPS are forecast to rise just 2% in 2019. However, the share price dip has turned ITV into a compelling dividend stock, with a forecast yield of 5% covered two times. That should keep things ticking over nicely while we wait for ITV Studios to work its global magic.

Off grid

Energy network operator National Grid (LSE: NG) remains one of the steadiest income plays on the FTSE 100 and although I expect that to continue, its recent showing has been disappointing for fans of the stock like me. Although share price growth is secondary with a company like this one, the 10% drop over the past 12 months is still disappointing.

Despite this, last financial year’s performance figures were impressive, with profit before tax up 13% to £3.56bn and total EPS rising 16% to 73p. National Grid has also been making large cost savings while offloading its UK gas distribution to concentrate on faster growth prospects. However, markets appear to have lost faith in its growth potential, which is understandable given today’s valuation of a toppy 16.6 times earnings.

The utility giant remains a strong and stable business, one that offers a forecast yield of 4.8%, covered 1.4 times. However, 2017 EPS growth of 19% is forecast to trail away to 8% in 2018 then 4% in 2019. I would still hold National Grid in my portfolio, but I wouldn’t rush to buy at today’s price.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended 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.