In this article we are going to share the list of hedge funds’ 10 best media and entertainment stocks to buy. You can skip our discussion and see the 5 Best Media Stocks To Buy here.
Media and entertainment stocks have been hammered this year and this may be a good time to dip our toes into this sector. The U.S. media and entertainment industry is expected to have a consistent CAGR of 8-9% through 2030. Over the last 10 years the U.S. media and entertainment industry grew by 15% despite the plunge we witnessed in early 2020.
The pandemic actually turned out to be a windfall for the industry. Overall COVID-19 immensely benefited the digital entertainment industry even though companies like Disney have reported zero revenue from its Parks division during the lockdowns. Instead, consumers started spending time watching movies, playing video games, reading books, and visiting websites. Not everything is created equal though. Some segments of this industry were developing quickly, like the gaming and streaming areas, while others, like the TV Broadcasting area, were growing more gradually. Moreover, the book publishing segment has really seen negative growth in general, making it an exception.
So, how did we come up with our list of the best media and entertainment stocks to buy now?
We started with identifying the holdings of iShares Evolved U.S. Media and Entertainment ETF (IEME) and we’ve ranked them using Insider Monkey’s proprietary hedge fund popularity data. iShares Evolved U.S. The Media and Entertainment ETF is an exchange-traded fund launched by BlackRock and invests in the publicly traded stocks of companies operating across the communication services, media and entertainment sectors. The fund invests in both growth and value stocks of companies with a diversified market capitalization and employs quantitative analysis to determine portfolio weights.
Let’s now take a look at our list of the best media stocks to buy now. The companies included in the list belong to the different sectors of the media industry and mostly deal in broadcasting and online streaming services. These stocks are ranked according to the number of hedge fund positions in each of them at the end of March. You can find out the latest rankings on our website. Along with this, we also considered analysts’ ratings and fundamentals while picking these stocks.
Please keep in mind that these companies lost an average of 19% since the end of the first quarter and underperformed the S&P 500 Index by 7.2 percentage points. That’s one of the reasons why some investors think these companies are in oversold territory and this may be a good time to step in. Here are the 10 best media and entertainment stocks to buy according to hedge funds:
Liberty Broadband Corporation (LBRDK) has a total market cap of about $18 billion and Vanguard Group Inc. has the highest holding of 9.43% in Liberty’s common stock outstanding.
“Liberty Broadband – A new position in 4Q 2021, holding company Liberty Broadband also suffered from a widening of a market-imposed holdco discount in an uncertain quarter. Liberty’s stakes in Charter and Alaskan cable company GCI also faced near-term concerns over slowing industry broadband additions, but these businesses have over a decade of pricing power history and are well positioned to weather an inflationary environment. We have a high degree of respect for our partners in John Malone and Greg Maffei, who are focused on growing value per share and are actively repurchasing discounted shares to help close the price-to-value gap.”
Alphyn Capital is a little bit more cautious:
“We part-financed the additions to Amazon and Wayfair by trimming some Liberty Broadband. Liberty Broadband is a HoldCo and tracking stock whose primary holding is Charter Communications. Charter benefits from its extensive network of cable assets that can provide higher bandwidth internet at better prices than offerings from traditional telecom and satellite carriers. Moreover, with excellent management and capital stewardship, Charter has increased its high-margin broadband subscriber base despite losing some video subscribers to “cord-cutting.”
Nevertheless, competition is intensifying, with telecom companies launching aggressive Fiber-To-The-Home upgrade plans and new entrants emerging with Fixed Wireless technologies. Cable’s co-axial lines are, for once, the inferior technology compared to FTTH. While Charter has many ways to upgrade its lines to remain competitive in the medium term, it no longer has a distinct advantage. As a result, in markets with fiber competition, cable companies typically have a 50% market share vs. the 80% market share they enjoy without fiber competition.
With Fixed Wireless, Cable has a strong advantage in owning the network for internet backhaul, but it is more difficult to predict the longer-term competitive environment. In both cases, moving from a near-monopoly to a duopoly, or longer-term an oligopoly, likely comes with weaker pricing power and slower subscriber growth. These considerations warranted trimming our Liberty Broadband position, and we will monitor developments closely.”
Twitter is ranked 9th in our list of the best media stocks to buy. Twitter, Inc. (TWTR) functions as a platform for public self-expression and real-time conversation. As announced on April 25, 2022, Twitter, Inc. entered into a merger agreement in which Twitter agreed to be acquired by an entity wholly owned by Elon Musk for $54.20 per share in cash. After the transaction is completed, Twitter will become a private company.
Vanguard Group Inc. is holding 10.79% of the total common stock outstanding and its market cap is $29 billion. Among the hedge funds tracked by Insider Monkey, Pentwater has the largest positions in Twitter Inc. (TWTR).
Here is what Greenlight Capital has to say about Twitter, Inc. (NYSE:TWTR) in its Q2 2022 investor letter:
“In April, Musk agreed to buy TWTR for $54.20 per share. Then, in May, he appeared to change his mind. The case law on this is quite clear. If it were anyone other than Musk, we would handicap the odds of the buyer wiggling out of the deal to be much less than 5%, or the percentage of bots that might be on Twitter.
But, it is Musk and therefore many believe that the laws again won’t apply. One former judge on the Delaware Chancery Court (where the case is being heard) went on CNBC to speculate that the court might let him out of the deal because Musk won’t respect the judgment, which would embarrass the court. Another variation is the court might rule against him, but TWTR might not be able to enforce the judgment.
Apparently, many people either believe these outcomes are acceptable or, in the alternative, are just the way the world works. We hope it isn’t so. Actually, we can do more than hope. We purchased a position in TWTR at an average of $37.24 per share. At this price there is $17 per share of upside if TWTR prevails in court and we believe about $17 per share of downside, if the deal breaks. So, we are getting 50-50 odds on something that should happen 95%+ of the time…” (Click here to see the full text)
Caesars Entertainment, Inc. (CZR) operates as a gaming and hospitality company in the United States. Caesars Entertainment, Inc generated GAAP net sales of $2.8 billion during the second quarter, up about $300 million from Q2 of 2021. CZR is ranked 8th among the 10 best media and entertainment stocks to buy.
Here is what Carillon Eagle Mid Cap Growth Fund has to say about Caesars Entertainment, Inc. in its Q4 2021 investor letter:
“Caesars Entertainment, a diversified casino-entertainment and resort company, underperformed in the period as its quarterly earnings update was viewed as disappointing by investors. The firm highlighted a number of one-time headwinds that ultimately weighed on margins, as well as some negative impacts brought on by the surge in COVID cases. Despite this, we believe that the sizeable overall margin improvements Caesars has realized coming out of the pandemic will ultimately prove sustainable in the long run.”
Charter has historically been a very popular stock among hedge funds; however, the stock’s popularity has been declining since the first quarter of 2020. The following quote from Andvari summarizes why this is the case:
“Regarding Liberty Broadband, Andvari has owned it for the last 7+ years primarily because of its large stake in cable company Charter Communications (NASDAQ:CHTR). Given that Liberty also traded at a wide discount to its own net asset value, Andvari saw this as an even cheaper way to own Charter. We sold Liberty because we saw (too slowly) a violation of one of the core parts to our investment thesis: pricing power at Charter was not as great as we imagined. Charter has not been able to raise prices in line with inflation. To add insult to injury, the trade association for the U.S. cable industry started proudly advertising about how internet price increases have remained far behind the rate of inflation.”
AT&T Inc. (NYSE:T) is a media, communications, and technology firm. AT&T is ranked sixth in our list of the best media stocks to buy now. On July 21, the firm posted earnings for the second quarter of 2022, reporting earnings per share of $0.65, beating analyst expectations by $0.03. The revenue over the period was more than $29 billion, down close to 17% compared to the revenue over the same period last year and beating estimates by $130 million. The firm also revealed that it was increasing mobility service revenue guidance to 4.5-5% growth for the full year.
On August 18, MoffettNathanson analyst Craig Moffett maintained a Market Perform rating on AT&T Inc. (NYSE:T) stock and lowered the price target to $17 from $19, appreciating the accelerated subscriber growth of the firm.
At the end of the second quarter of 2022, 55 hedge funds in the database of Insider Monkey held stakes worth $1.7 billion in AT&T Inc. (NYSE:T), compared to 74 in the preceding quarter worth $4 billion.
In its Q2 2022 investor letter, Argosy Investors, an asset management firm, highlighted a few stocks and AT&T Inc. (NYSE:T) was one of them. Here is what the fund said:
“I purchased shares of AT&T Inc. (NYSE:T) prior to its spin-off of Warner Brothers Discovery (WBD). Most people are probably familiar with AT&T. They are a major cellular service provider, and until recently owner of the Time Warner media assets, which include HBO, CNN, TNT, TBS, Cartoon Network, DC Comics and the Batman content brands, and more. At the time of my purchase, I estimated that the combined T/WBD assets traded at a 15% levered FCF yield, or 6x FCF. I also believe that WBD, which now has HBO Max, has future growth in front of it which was previously in doubt when Discovery was primarily tied to the declining cable television bundle. Since then, Netflix reported disappointing subscriber growth, which threw all streaming companies into disarray. WBD followed that news with a disappointing outlook on its business during its own quarterly earnings.
As a result, shares of WBD have declined nearly 40% since the spin-off. WBD now trades for 7x 2023E FCF and there is great potential for returns over the next few years as WBD pays down debt used to finance its merger combining Warner Brothers and Discovery and grows. We do not own a large position in WBD at present, but we may add to it over time.”
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