Commentary: January's Showbiz 50 performance a good Hollywood sign

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Might Wall Street finally have priced in everything that is wrong with the media and entertainment industries?

Judging from last month's action, it's a possibility.

In January, The Hollywood Reporter Showbiz 50 index fell 2.5%, vastly outperforming the rest of the market, which experienced one of the worst Januarys in history, with the S&P 500 off 8.6%.

The best performers on THR's index were Netflix (up 21%), Liberty Media (16%), Dish Network (16%), Google (10%) and Imax (7%).

With the exception of Netflix, all those companies and many more have had their stocks decimated, so their shares ticking higher for a month might not be a big deal -- except that the higher ticks came during a remarkably bad month for stocks overall.

At the opposite end of the Showbiz 50 was Carmike Cinemas, down 45% in January, followed by Crown Media (-42%), Sinclair Broadcast Group (-40%), Hearst-Argyle Television (-35%) and Warner Music Group (-31%).

Getting the most love from Wall Street analysts in January probably was Netflix, which reported strong numbers, decent guidance and actually might be benefiting from a U.S. recession because it offers a cheap alternative to traditional bricks-and-mortar DVD rentals.

Also earning praise from the Stanford Group in January were Time Warner and Google.

Regarding the latter, Stanford analysts see the Internet giant claiming nearly 16% of the global ad spend by 2011, up from less than 9% in 2007.

"Google is the primary beneficiary of Internet advertising, with a revenue growth rate twice its competitors," the report said.

As for Time Warner -- shares of which are off about 88% in the past eight years -- Stanford analysts argue that the stock is undervalued and that CEO Jeffrey Bewkes "seems keenly focused on driving financial results through cost cuts and the strategic realignment of assets."

On Monday, Credit Suisse issued a 78-page report dissecting its media picks for playing defense in the near term and to position investors for a global media recovery, which it predicts will begin in the fourth quarter.

For defense, the report's recommendations include Comcast; for the recovery, its suggestions include Google and Disney.

Although the pay TV industry is not immune to economic weakness, the analysts argue, Comcast derives 90% of its revenue from recurring subscriptions. The report also notes that Comcast stock is trading at "trough levels."

The Credit Suisse analysts seem even more bullish on Disney, though not until the economy improves.

"Disney boasts the strongest portfolio of brands and management team in the business, both of which should be a competitive advantage," the report says.

In January, Disney shares sunk 9%, better than all other conglomerates except Time Warner, which was off 7%. CBS was worst, losing 30%, followed by News Corp. (-24%), Viacom (-23%) and Sony (-12%).
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