Smart money is pouring into the TV, movie and streaming giants in a sign that investors are betting on a return
The overall market is down this year: The S&P 500 is down 20%, the tech-laden Nasdaq is down 27%, and the Dow is down 14%. But Hollywood Group’s performance is even worse: Shares of Paramount Global are down 29%, Lionsgate is down 45%, while shares of Warner Bros. . Fox, which has declined a relatively modest 12%, is ironically a Hollywood stock pulling out of the pack simply because the Murdoch-led media empire has focused on terrestrial and cable operations rather than moving to streaming.
Nevertheless, trading patterns are indicating that a further pullback may occur. The number of shares traded in those six largest entertainment companies since September 1 has been higher than usual. And it’s a sign that investors are going back to the entertainment sector with a little more financial volatility.
“The old Wall Street admonition to buy straw hats in the winter and overcoats in the summer still holds, but less so for movie and entertainment companies, as their product/service offerings are more diverse these days,” said Sam Stovall, Chief Investment Strategist CFRA Research told TheWrap. “Amusement parks provide opportunities for entertainment in the summer when people prefer to be outside, while movies/streaming give people a reason to be comfortable at home in the dead of winter.”
What’s more, the last months of the year have traditionally been the most exciting for the entertainment industry. The last hot dog to be eaten on Labor Day is a very strong period for entertainment companies that lasts through the end of the year. Since 1990, the Standard & Poor’s 500 Movies and Entertainment Industry Index has increased in price by an average of 6.24% between August 31 and December 31. This benchmark easily beats the S&P 500’s 4.4% average gain — and the industry has pulled off the feat 60% of the time.
That doesn’t mean investors are ready to take out a second mortgage on the home and put every last penny into Netflix or WBD. Remember, the market has in the past famously referred to former Federal Reserve Chairman Alan Greenspan as “irrational enthusiasm.” Like the Grateful Dead song, “driving that train high on cocaine” often leads to “trouble ahead, trouble behind”.
Michael Bury, the fund manager played by Christian Bale in the movie “The Big Short”, on tweeted on Wednesday“We haven’t hit the bottom yet.” Bury, who famously predicted the 2008 financial storm, thinks there will be a catastrophic collapse of US stocks as the nation barrels toward a recession.
“Crypto crash. Check it out,” he tweeted. “Meme crash. the inspection. SPAC accident. the inspection. inflation. the inspection. 2000. Check. 2008. Check. 2022. Check. ,
A seasoned Wall Street analyst said entertainment stocks have fallen so much that they are now short, a relative bargain and reminded them of the buying opportunities that emerged during the dark days of the financial crisis, which has hit banking and brokerage stocks. pushed aside.
“It’s like buying Bank of America shares when it was priced at $4 during the financial crisis,” the analyst said, adding that the bank’s stock has risen 750% since then. “Not that you can compare the current market to 2009, but entertainment companies are cheap and there’s no way to go up.”
This is why market maestro Dan Loeb plunged nearly $1 billion in Disney stock last month, reveals in filling a regulator, The activist investor’s Third Point asset management firm held a Disney stake for two years from 2020 to early 2022, forcing Disney to double down on its streaming services. The stock rose 70% during that time period.
Now Loeb is back, seeking to unpack more value in the company that could double the share price in short order. He has urged Disney to spin off ESPN (an idea the company has rejected), buy now cable giant Comcast-owned Hulu’s 33% stake, and change Disney’s 11-member board of directors (also known as Disney’s former directors). CEO Bob Chapek may later endorse the board severely lagged behind renewing his contract).
Loeb’s investment in Disney has excited investors, especially given the fact that the stock’s price-to-earnings ratio has declined 78% since last September. This suggests that the current price may be a bargain.
And Chapek has told investors he expects the company to continue to outperform analysts’ expectations in the fourth quarter, especially as revenue from Disney’s theme park business jumps 70% of third-quarter revenue to $2.2 billion. . The idea is that increased demand now that the US is recovering from the pandemic is building momentum for the company’s streaming initiatives (including this week’s Disney+ Day and the 2022 D23 Expo at the Anaheim Convention Center).
It could help Disney regain its pole position as Hollywood’s unofficial stock-market speed car, giving the entertainment industry a financial barometer and a stronger sense of direction. The company’s share price has risen nearly 19 per cent since June 30.
Other Hollywood companies are also showing signs of a revival. On Wednesday, Wells Fargo equity analysts advised scooping up shares of Warner Bros. Discovery — just “close your eyes and buy it.” 2 entertainment company, down 51% since completing its merger in April, closing Thursday at $12.54 — an amount that analysts at the bank think should trade at $19 a year. . This is a 52% jump in value from the current price.
Netflix got an upgrade this week from Macquarie analyst Tim Nolen, who expressed excitement for streamer’s upcoming ad-supported level of funding by raising the bank’s price target from $170 per share to $230, up from its current level of $221. There is a bump from valuation. Still, it’s sadly below the roughly $600 the stock was trading for a year ago.
Paramount’s stock remains a “hidden gem,” wrote equity analyst Denis Buivolov in a column On the financial website Seeking Alpha. He said the company’s better-than-expected third-quarter results, driven by the success of the big-screen blockbuster “Top Gun: Maverick,” will power its streaming service in the coming months. The stock is down about 30% this year, closing Thursday at $22.71.
The only major entertainment stock not showing much bounce is Lionsgate, which got Downgrade from Wolff analyst Peter Supino on Wednesday Which pushed an already gloomy share price down even further. Investors are confused by CEO John Feltheimer’s strategy for the mini-major, which is either an acquisition target or about to launch some major acquisitions of its own.
