Tuesday, April 8, 2008

Tuning into the Media

Every day my financial inbox is crammed with newsletters, market updates, and the usual spam. Since my lackey Dimitri refuses to read them, I'm left with the task, and I have to say that I don't really enjoy most of it and usually try to find something else to do as well. However, there are a few that I find to be worthwhile and one of them is from a company called Investment U.* (Disclaimer: I have no personal or professional affliation with them.)

Yesterday's newsletter featured an article written by Floyd Brown concerning the status of the media sector, in particular radio and print. He is a contrarian, meaning that he buys stocks when everyone else hates them. How do you know when a sector has been grossly oversold? You know when you see articles in newspapers and magazines and the talking heads on financial news shows saying there is no hope for it. That, claims Mr. Brown, is currently the case with radio and print, and I might have to agree with him. Stocks in this sector are down 30-80% since a year ago.

But where my views digress with his are in the stocks themselves. He thinks that Clear Channel (CCU) is a screaming buy below $30 and gives very good reasons why. Despite a negative article in Fortune saying that Clear Channel's prospects are grim, the company grew revenues over 5% last year. They are starting to sell their underperforming assets (they sold 217 non-core radio stations just this February), and if they were to sell their billboard advertising business, Mr. Brown claims they could wipe out their debt. He says the company is a steal below $30. Maybe so, but looking at the chart, I'd wait until it goes back up to $30. Actually, I'd wait until there's some confirmation on the lawsuit mess they're in concerning their bank and private equity buyout which probably won't happen until the case goes to court in early May.

In addition to Clear Channel, Mr. Brown also likes Time Warner (TWX), Citadel Broadcasting (CDL), and Gannett (GCI). He says that the upcoming presidential elections as well as the Olympics will increase the earnings of these media giants along with their share prices. Sounds reasonable to me. My pick of these three is Citadel. The stock has lost over 80% of its value in a year and is now staging a comeback. Last year's acquisition of the ABC radio network along with the resignation of their CFO late this January has burdened the stock, but the company's plans for major restructuring of its radio stations is looking like it's starting to pay off. Time Warner looks like it just put in a double bottom and needs to push through its $15 resistance level for a rally there to be confirmed.

Other stocks that look promising:
The best looking charts among the more heavily traded stocks in the broadcasting group are the following:
EMMS - Emmis Communications: The chart showed not one but two bottoming tails in January and the stock has risen steadily, up 47% since then.
CMCSA - Comcast: The stock is up 25% since its January low and is bumping up against resistance at $21.
WON - Westwood One: This chart, similar to Emmis's, has been steadily advancing and broke out of resistance.
DISH - Dish Network: The stock looks to have put in a double bottom and is pushing against minor resistance. If it can start filling the gap at $33.50, I think it'll be heading northward for a while.
DTV- Direct TV: This stock took a nasty tumble last fall, staging an incredible 44% comeback since January. It's now trading at its pre-tumble level. I'd be a buyer if it falls back to its $24 support or breaks overhead resistance at $27.

For the moment, I'd leave Sirius (SIRI) and XM Satellite (XMSR) alone until their merger is finalized. The stocks are just too volatile, although if you want to play one of them, my pick would be Sirius as it's closing in on its $2.65 major support level. Also, it seems to have the most to gain from the merger. I'd also leave the print sector alone as many of the stocks are just now putting in bottoms...or are they? The New York Times is the one bright spot, enjoying a 28% gain since January.

I do agree with Mr. Brown that the rumors of media's demise are greatly exaggerated. I mean, these guys are no dummies, and I'm sure they'll find ways to streamline and reinvent their business models that include more of the emerging media technologies on the internet as well as in the marketplace. It's time for us to tune into these companies.

Now back to your regularly scheduled programming...

*For more info on Investment U and to sign up for their free newsletter, go to investmentu.com.

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