Wednesday, July 06, 2005

Media stocks depressed, why?

David Faber was doing an ed-op piece on the old media stocks, namely TWX, DIS, NWS and VIA, wondering why they are still depressed and not attracting any buyers. The morning guest (his name eluded me) offered that when they're split and separately IPOed then maybe there would be some interest (referring to VIA), especially after people focus on their cash flow.

I couldn't disagree more. There are 2 forces right now driving media stocks, one is cyclical and the other structural which both are pointing down right now. Cyclical forces such as ad sales, film box office are hitting cyclical down turns suggesting companies are not spending as much ad $ which is a major discretionary expense and reflects the psyche of the CFOs getting cautionary at best. Structural forces are also compressing Media companies ability to compete with the new media such as the internet, blogs etc getting the bigger pie of the ad pool. In additional, piracy is not helping the content department either.

Add these negative forces with stocks still trading at only median valuations (not depressed like the Street suggest), insane analysts' price targets assuming expanding multiples and complacent option crowd (still insanely bullish -- low Put/call ratio) as well as technical breakdown, you have disasters in the making. These are the forces that mere financial engineering such as spin-off or share buy-backs will cure.

IMHO, stay away with these stocks and you'd likely buy them a LOT cheaper, at truely depressed levels.

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