Trump Stock Rally Leaving Big Media-Entertainment Behind

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While the president-elect prepares to take over the White House, the Dow nears a record. One sector lags: media and entertainment companies.

The Donald Trump election rally that's sent the Dow Jones Industrial average hurtling toward an all-time high of 20,000 has left behind one key industry: big media conglomerates.

The president-elect has spent the election railing against television news giants like CNN and even right-leaning Fox News Channel. And Wall Street appears to be listening now that the real-estate mogul is heading to the White House. Of the 50 entertainment/media stocks tracked by The Hollywood Reporter, 36 of them lag the 9 percent gain made by the blue-chip index ahead of Friday's potential record-breaking open.

While it’s tough to say there’s an exact correlation between Trump’s criticism of media and falling stock prices, experts say there are some legitimate concerns for the sector — as well as some lucrative opportunities — under a Trump presidency.

“Media and technology have underperformed because Trump wasn’t exactly favorable to leaders of those industries, so perhaps his policies will reflect that,” said Michael Kramer, founder and portfolio manager of Mott Capital Management. “He has been very critical of media. Obviously, the bad-mouthing hurts.”

On the flipside, Steven Birenberg of Northlake Capital Management predicts that a lucrative business environment under Trump will help a variety of industries and it’s only a matter of time before media-entertainment catches up. The FCC, Justice Department and IRS could all adopt a more business-friendly, merger-friendly posture, which would keep stocks humming under Trump, he says.

Among Birenberg’s favorite stocks, all of which he owns shares of, are Comcast and Charter Communications, two of the major players in cable television.

“Cable is a big winner under Trump as net neutrality could go away. At least the odds of the FCC enforcing any price caps on broadband will go away,” says Birenberg, who did not support Trump. “I despise the man … but when it comes to managing my clients’ money, my fiduciary responsibility is to do what is best for them, so if Trump helps out media and entertainment stocks, I’ve got to take advantage.”

He also likes video game publishers Electronic Arts and Activision Blizzard due to the transition to digital downloads and in-game purchases, as well as Live Nation Entertainment, the giant concert promoter that also operates Ticketmaster. “The concert industry is booming globally,” he says.

Trump has been beating the drum against what he considers unfair trade deals with China, and among the biggest losers since the election is Alibaba. The massive Chinese new-media company that is co-producing films with Steven Spielberg’s Amblin Partners is off 7 percent since the election.

Another laggard since Nov. 8 is Facebook, down 3 percent. The social networking giant has been under fire from the left for promoting “fake news” and from the right for allegedly pushing negative stories about conservatives and positive ones about liberals.

Also lagging are some theater operators, most notably Regal Entertainment Group, down 7 percent, and Cinemark Holdings, off 3 percent. Movie theaters, though, are expected to get a boost from Rogue One: A Star Wars Story, which could open this weekend to as much as $350 million globally.

Kramer says the Trump rally has mostly benefited bank, energy and infrastructure stocks, and he suspects it won’t last.

“It’s all about tax reform, deregulation and infrastructure and deficit spending under Trump, and those are all pro-growth policies,” he said. “The market is forward-thinking, but it doesn’t know what the actual policies will be, so the rally may fizzle.”

Kramer is bullish on Netflix (“They’ll really benefit from international subscribers”) and Disney (“It’s about the content”), but is bearish on Comcast (“Cable is old-school. How can it compete with a guy on YouTube who gets 20 million views on every video and, what’s it cost him? A few hours of his time”).

He also doesn’t like Sirius XM Radio. “It was great when it first came out, but now you have a 4G hotspot in your car so you can stream whatever you want,” he said. “They see the writing on the wall, which is why the rumor is that they are looking to acquire Pandora.”

Beyond a Trump effect (perceived or real), there are plenty of issues plaguing individual companies. Disney, for example, will score big with Rogue One, but it lost 2 million ESPN subscribers in the fiscal year ending Oct. 1. As for Viacom, it remains to be seen what new CEO Bob Bakish can do to turn around the Paramount film studio as well as cable channel MTV. And 21st Century Fox was hit by a downgrade Monday by Telsey Advisory Group, which predicts the Rupert Murdoch-controlled company will have to fight European regulators over its planned $14.1 billion acquisition of the 61 percent of British satellite TV service Sky that it doesn't already own.

Other losers that are missing out on the Trump rally include TV ratings firm Nielsen, AMC Networks, Live Nation and Amazon.com. Among the media-entertainment stocks that are up since Nov. 8, though still lag the gains made by the Dow, include Google, Imax, News Corp, Dish Network, TiVo, Twitter and Sirius XM Radio.

Among the conglomerates, Sony is off 3 percent, joining Disney, 21st Century Fox and Viacom as underperformers, but CBS, Comcast and Time Warner have each at least paced the Dow, as they are up 12 percent, 9 percent and 8 percent, respectively. Time Warner, of course, shouldn’t fluctuate much as it has agreed to be acquired by AT&T for $84.1 billion, but Trump has signaled his displeasure with the idea of a giant phone company, which also owns DirecTV, acquiring the parent of CNN, HBO and Warner Bros.

“Trump’s comments have not been media-friendly,” said Tuna Amobi of CFRA Research. “He wants to roll back regulations in general, but he has said nothing specifically about media regulations and the FCC, so the markets are taking a wait-and-see approach. There's still a good chance AT&T buys Time Warner, but those chances are slimmer under Trump.”

Amobi is most bullish on CBS and Disney. The former, he says, “is relatively immune to cyclical advertising due to a shift to more stable revenue streams,” like selling content to Netflix, launching subscription service CBS All Access and, of course, retransmission fees.

Of Disney, he says: “Its franchise pipeline has never been more robust. Rogue One is tracking well and besides LucasFilm, they have Marvel.”

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