Media stocks may feel a bit put out these days, but we found that are outperforming, and attracting hedge funds.
The news is in quite a state. Once alternative outlets within the digital landscape have transformed, becoming go-to resources for breaking stories. And they're even luring top talent away from leading papers.
Statistician Nate Silver, along with his FiveThirtyEight blog, departed The New York Times (NYT) for ESPN (DIS) and was joined by The Washington Post’s John Keim, who left the newspaper after one month; the Times’ tech writer David Pogue and political correspondent Matt Bai headed over to Yahoo! (YHOO); editor Rick Berke swapped his Senior Editor position at the Times for Executive Editor at Politico; and The Guardian’s Glenn Greenwald left to start a new online media and news venture.
Social networking sites have also emerged as important players in the world of news. The Pew Research Center, as part of an ongoing study of social media and news, found that a significant portion of adult Facebook (FB), Reddit, and Twitter (TWTR) users in the US engage with news on their sites. The number of news consumers on each site are as follows:Approximately 62% of Reddit users or 2% of the adult population Roughly 52% of Twitter users or 8% of the adult population Around 47% of Facebook users or 30% of the adult population
Local TV is all the rage
For most American adults, television is still the leading source when it comes to following the news at home. Using Nielsen data on domestic news consumption habits, the Pew Research Center found that 71% of adults watch local news, 65% watch network news, and 38% watch cable news on television each month.
While the numbers are different, the conclusion echoes the findings of a July Gallup poll in which 55% of Americans said they relied on television for news versus 21% who preferred the Internet and 9% who opted for newspapers.
Meanwhile, local television has become the medium of choice for major media companies. In July, the Tribune Company (OTC:TRBAA) agreed to acquire Local TV’s 19 television stations in 16 major markets, including Denver, Cleveland, and St. Louis, for $2.725 billion in cash. The deal followed fellow publisher Gannett Co’s (GCI) agreement to buy Belo Corp for $2.2 billion, an acquisition which will increase Gannett’s holdings to 43 stations from its current 23.
Since news is no longer constrained to the pages of a newspaper or television channels, we decided to look for investment opportunities among all stocks involved with covering, and relaying, current events.
We created a universe comprised of relevant stocks belonging to the broadcasting, entertainment, internet providers, and publishing industries. Next, we screened that universe for stocks that have outperformed the market during the last quarter with a return above 20%.
As we frequently point out, past performance isn't a guarantee of future success, so we also decided to look for indications of upside potential. We narrowed down our list by looking for stocks with bullish sentiment from institutional investors, which is reflected in significant net institutional purchases over the last quarter representing at least 5% of share float.
These purchases indicate that institutional investors, such as hedge fund managers and mutual fund managers, expect these stocks to outperform into the future.
We were left with four media stocks on our list.
Click on the interactive image below to see sales data over time.
Do you think hedge funds are wise to invest in these media stocks? Use this list as a starting point for your own analysis.
1. Entravision Communications Corporation (EVC, Earnings, Analysts, Financials): Operates as a diversified Spanish-language media company.
Market cap at $528.55M, most recent closing price at $6.02.
Net institutional purchases in the current quarter at 5.8M shares, which represents about 10.09% of the company's float of 57.49M shares.
Performance over the last quarter at 21.70%.
The company’s portfolio consists of 53 owned and/or operated television stations in 24 markets in the US, and 41 of those stations broadcast in 19 of the nation’s top 50 Hispanic markets (PDF). Entravision owns and/or operates affiliates of Spanish-language networks Univision - which includes news in its programming - and UniMas in 20 of its markets.
Almost half of the total US Hispanic population lives in California and Texas, and Entravision boasts 22 affiliates between the two states. Within the region, the company operates television duopolies in the 5 highest-density Hispanic markets: Laredo, Texas; McAllen-Brownsville, Texas; El Paso, Texas; Yuma, Arizona-El Centro, California; and Corpus Christi, Texas.
2. The E.W. Scripps Company (SSP, Earnings, Analysts, Financials): Operates as a diverse media company with interests in television stations, newspapers, and local news and information websites.
Market cap at $1.05B, most recent closing price at $17.71.
Net institutional purchases in the current quarter at 1.3M shares, which represents about 5.87% of the company's float of 22.16M shares.
Performance over the last quarter at 27.42%.
Last week, Scripps announced that it will shut down its Washington DC-based Scripps Howard News Service, a wire service that provided syndicated stories to papers nationwide, by the end of the year. This decision is part of the political and national reporting bureau’s shift away from exclusively reporting in print toward a multi-platform - television, digital, and print - approach to journalism.
In addition to the DC Bureau, Scripps owns daily newspapers in 13 markets and 19 local television stations, including 10 ABC affiliates, 3 NBC affiliates, and 5 Spanish language stations. Of those stations, 7 are located in 6 of top 20 television markets in the US (PDF): Los Angeles, Detroit, Phoenix, Tampa, Denver, and Cleveland.
3. Nexstar Broadcasting Group (NXST, Earnings, Analysts, Financials): Engages in the acquisition, development, and operation of television stations and interactive community websites in medium-sized markets in the United States.
Market cap at $1.33B, most recent closing price at $44.57.
Net institutional purchases in the current quarter at 8.6M shares, which represents about 34.96% of the company's float of 24.60M shares.
Performance over the last quarter at 55.81%.
Earlier this month, Nexstar entered a definitive agreement to acquire seven CW and FOX affiliates in 4 markets - Roanoke, Virginia; Huntsville, Alabama; Quad Cities, Iowa; LaCrosse, Wisconsin - for $87.5 million. Aside from LaCrosse, which has a ranking of 128, the markets are among the top 100 in the country. The announcement is the third of its kind this year, coming on the heels of the company’s $103.3 million acquisition of five television stations in Des Moines, Iowa; Rock Island, Illinois; Sioux City, Iowa; and Binghamton, New York. And preceding that, Nexstar acquired 11 stations in Louisiana and Texas for $270 million in April.
Presently, Nexstar owns and/or operates 72 stations and 13 related digital multicast signals in 41 markets, reaching nearly 12.1% of all television households in the US. By the end of the year, thanks to previously mentioned acquisitions and and other pending transactions, the company’s portfolio will swell to 102 stations, expanding its reach to 54 markets and roughly 15.5% of the nation’s households.
4. Sinclair Broadcasting Group Inc. (SBGI, Earnings, Analysts, Financials): Provides certain programming, operating, or sales services to television stations in the United States.
Market cap at $3.B, most recent closing price at $31.68.
Net institutional purchases in the current quarter at 21.9M shares, which represents about 29.95% of the company's float of 73.11M shares.
Performance over the last quarter at 39.83%.
Over the past two years, Sinclair has spent almost $3 billion in an aggressive local TV acquisition spree that reached its apex in late July when the broadcasting giant agreed to buy eight local stations from Arlington, Virginia-based Allbritton Communications for $985 million. The company’s acquisitions continue with its latest agreement to buy 8 television stations - located in 3 markets - from New Age Media for $90 million.
After pending transactions close, Sinclair states it will own and operate, program, or provide sales services to 163 stations in 77 markets. The company’s television stations, which include ABC, Azteca, CBS, CW, MyTV, NBC, and Univision affiliates, will then reach 38.7% of households in the US.
(List compiled by Mary-Lynn Cesar. Institutional data sourced from Fidelity. Quarterly sales data sourced from Zacks Investment Research. All other data sourced from Finviz.)
Analyze These Ideas: Getting StartedRead descriptions for all companies mentioned Access a performance overview for all stocks in the list Compare analyst ratings for the companies mentioned Compare analyst ratings to annual returns for stocks mentioned Real-Time Opinion: Scan the latest tweets about these companies (feed will open in a new window)
Dig Deeper: Access Company Snapshots, Charts, FilingsEntravision Communications Corporation (EVC, Chart, Download SEC Filings) The E.W. Scripps Company (SSP, Chart, Download SEC Filings) Nexstar Broadcasting Group (NXST, Chart, Download SEC Filings) Sinclair Broadcasting Group Inc. (SBGI, Chart, Download SEC Filings)
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