Everyone loves a mystery. In 2003, media investors will have one of their own: Will the nascent advertising recovery, which lifted TV networks in 2002, spread to the rest of media? The results look promising, with U.S. ad sales projected to rise 5.3% in 2003, more than double the prior year's 2.6% hike.
Investors, who returned to media stocks in mid-2002 with buys on Viacom (VIA
) and News Corp. (NWS
), are now eyeing such flattened stocks as AOL Time Warner (AOL
). Some look favorably even on cable stocks like Comcast (CMCSA
) and Cox Communications (COX
), whose industry has been shaken by debt concerns and the fallout from criminal charges at Adelphia Communications.
Some players are betting the advertising revival will continue. Mark G. Greenberg, portfolio manager at Denver-based INVESCO Leisure Fund, recently added to his stake in ad giant Omnicom Group (OMC
), which owns three of the world's 10 largest agencies. Greenberg figures that, with half Omnicon's business overseas, it has plenty of room to grow as weaker foreign ad markets begin to pick up later in the year.
J.P. Morgan Chase & Co. analyst Spencer Wang believes embattled AOL Time Warner has the biggest upside. Wang likes its non-Internet assets, including its cable channels, magazine unit, and the movie studio that produced the Harry Potter and Lord of the Rings blockbusters. He figures the company will generate a robust $4 billion in free cash flow in 2003 and that its non-Internet business is worth more than the company's $14 stock price. He projects $20 within a year.
John Malone's Liberty Media (L
), which holds everything from AOL to News Corp. and the Discovery Channel, is ideally situated to take advantage of a media comeback, says S. Basu Mullick, a portfolio manager for the Neuberger Berman Partners Fund. Mullick figures Liberty, trading below $10 for months, is worth at least $14 a share.
One of the media world's biggest potential deals--a bid by Rupert Murdoch's News Corp. to buy Hughes Electronics' DirecTV satellite service--has buyers on both sides of the transaction. Mullick owns Hughes Electronics (GMH
). Ajay Mehra, a portfolio manager with Columbia Management Group, likes News Corp.'s fundamentals, including its fast-growing stable of cable channels. A deal to buy Hughes would give Murdoch more opportunity to distribute his worldwide collection of sports, news, and entertainment programs, he says.
Improving fundamentals make cable a better buy, says Larry Haverty Jr., vice-president of State Street Research & Management Co., which holds Comcast and Cox. Both have major debt after laying superfast fiber-optic wires to battle satellite TV with new interactive services, and Comcast still must digest its $30 billion acquisition of AT&T's (T
) cable systems. But Haverty likes both companies' cost-conscious management and thinks the bungled EchoStar-DirecTV merger has hobbled cable's biggest rivals. Whether the cable companies can come back, however, is another mystery media investors want to see resolved.
By Ronald Grover
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Copyright 2002, by The McGraw-Hill Companies Inc. All rights reserved.
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