The best 'defense'
Analysts eyeing safer sector playsThe dog days of summer present an opportunity for Wall Street observers to revisit and modify their take on the stocks they track, especially since the markets have been in turmoil. No wonder then that media and entertainment industry analysts have been highlighting some favorite sector stocks at a time of uncertainty.
In a broad-based industry report, Banc of America Securities analyst Jonathan Jacoby looked to identify the best big entertainment stocks amid an uncertain economic climate.
"Local media already are experiencing an advertising recession, and further economic deterioration could make things worse," he wrote.
Jacoby added that "several data points suggest that ad trends remain healthy for media with exposure to large national advertisers." For example, this year's upfront was stronger than expected, and global advertising agencies have continued to post solid results, though the analyst warned that things could deteriorate here as well.
His conclusion: It's "time to play defense" for investors. "We prefer those stocks most insulated from a potential economic slowdown," he wrote.
So, which media giants are best-positioned under these circumstances? According to Jacoby, News Corp. and Time Warner Inc. look like winners, "while CBS fares the worst" because a high percentage of its revenue is based on U.S. local advertising.
Rupert Murdoch's conglomerate looks particularly strong, the analyst suggested. "Not only does News Corp. seem to be quite well positioned for the current environment, it is the cheapest of the large cap conglomerates" on an enterprise value-to-operating cash flow basis, he wrote.
In other sector stock updates, Miller Tabak + Co. analyst David Joyce upgraded shares of cable networks operator Discovery Holding from "neutral" to "buy," arguing that its "U.S. ratings and international margins are improving."
He highlighted the upside of up to 21% in the stock "thanks to the recent market turmoil."
However, Joyce reduced his price target on Lionsgate by $1 to $13 "as near-term investment in film marketing and TV production, which should create longer-term benefits, hit our free cash flow-based" valuation model.
Finally, Wedbush Morgan Securities analyst William Kidd raised his earnings estimates for film theater operator Regal Entertainment Group, citing a "good" third-quarter boxoffice.