Entertainment sector 'attractive'

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NEW YORK -- With Wall Street gearing up for its first quarterly earnings season of 2007, entertainment industry analysts continue to unveil their key stock picks for the new year, with differing views on the sector conglomerates.

One of the most prominent media analysts, Merrill Lynch's Jessica Reif Cohen, on Tuesday called shares of News Corp. and Time Warner Inc. her "top picks for 2007," while Bear Stearns analyst Spencer Wang suggested little further upside for TW's stock after a strong recent run.

Amid fast-developing digital-media models and concerns about a slowing U.S. economic momentum, Reif Cohen said TW and News Corp. should do well as they are "bellwether stocks with significant scope for continued shareholder returns" that also are "somewhat more insulated from a slowing U.S. economy than their peers." In addition, News Corp. and TW also are the two diversified media companies with the strongest online properties (MySpace and AOL, respectively), she added.

However, Wang in a note Tuesday was less bullish on TW, arguing it already is trading in line with its peers.

"While we are disappointed to have missed the recent move in TW's stock, we think TW shares are fairly valued at current levels," he said.

Wang last week unveiled shares of Viacom Inc. as his top sector pick for the new year and boosted his price target $4 to $49. Viacom's stock had seen the smallest 2006 gains out of all entertainment sector biggies.

Reif Cohen also said in a report that shares of the Walt Disney Co. continue to "trade at a discount to both News and TW and to (their) historical average" despite gaining strongly in '06. As such, she boosted her price target to $38 and maintained her "buy" rating.

Reif Cohen also had some general advice for media and entertainment investors, which echoed comments from others on the Street.

"After two years of lagging performance, diversified media significantly outperformed the market in 2006," she said. "Given the shift in sentiment that has accompanied this move, we no longer feel like contrarian investors (versus a year ago) and have the general sense that the easy money was made in 2006."

Overall, she argued that the sector is "still attractive" and is "likely to outperform again." However, she suggested investors be "more selective" this year.

As key risks for entertainment stocks this year, Reif Cohen cited the "less-than-sanguine views of the Merrill Lynch economics and advertising teams," as well as the possibility of a strike by the actors and writers guilds.

"Given this backdrop, we do not anticipate another year of 20%-plus upside for the majority of the group," she said. "We are more inclined toward names with more defensive characteristics or company-specific catalysts."

A team of UBS media and entertainment analysts recently suggested a similarly selective approach to European sector investments this year. They cited News Corp.-controlled U.K. satellite firm British Sky Broadcasting and German pay TV provider Premiere as key stock selections for 2007.
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