We recently published a list of 10 Worst Broadcasting Stocks to Buy According to Short Sellers. In this article, we are going to take a look at where Gray Television, Inc. (NYSE:GTN) stands against the other broadcasting stocks.
Election Volatility in the Stock Market
September is a relatively volatile month for the stock market every year, under the pretense of one reason or another. However, with rate cuts around the corner, 2024 might be different.
Mona Mahajan, a senior investment strategist at Edward Jones, recently joined CNBC to discuss the importance of long-term investors leaning into market weakness. She believes that market volatility, such as that of this September, is an opportunity for investors to diversify their portfolios.
In August, the S&P 500 was up 18%, which, according to Mahajan, suggested an unsustainable rise that would most likely be met by a pullback or correction. Last week, the market experienced a 4.2% decline following this.
A series of weaker-than-expected economic reports on employment contributed to the market decline. These reports included job openings, ADP employment data, and non-farm payrolls. The most significant report, non-farm payrolls, was lower than anticipated. Additionally, downward revisions to previous economic data further spooked the market.
To balance this, the unemployment rate was brought down to 4.2%-4.3%, and 144,000 jobs were added. While this isn’t a big number, it shows that the economy is still improving. In a recession, job growth would be negative. Therefore, the current situation, while not ideal, is not indicative of a recession. In fact, the number of people filing for unemployment claims decreased on a week-to-week basis.
She advocates for long-term investors to take advantage of market downturns, as market volatility provides ideal entry points for investing in undervalued assets.
Mahajan also addressed the broader economic landscape, including the performance of large-cap technology stocks, which she noted may not be the haven they once were, as in 2023 or the first half of 2024. This suggests a need for investors to consider diversification beyond tech stocks. Still, she thinks that AI is a driving force in the market, suggesting that it will play a crucial role in various sectors over the next several years.
She says that historical patterns indicate that bull markets typically last longer than bear markets — the average S&P 500 bull market lasts about 5.6 years, which can encourage investors to maintain a long-term perspective rather than reacting impulsively to short-term market fluctuations.
In Mahajan’s view, for the S&P 500, a multiple of 17 seems reasonable. This valuation is generally on the higher end compared to historical levels over the past 15 years.
Interest rates are currently at a high point of 5.5% but are expected to decline over the next year or two. This potential rate-cutting cycle could positively impact stock valuations. While earnings growth for the current year has been revised downward to around 10%, it is still expected to be strong. Given these factors, it’s possible that the S&P 500’s multiple to exceed 17.
However, it’s important to note that election-driven volatility brings growth spurts for broadcasting media companies, with their revenues increasing because of the global advertising industry benefiting from political ad revenue due to election campaigns. We recently discussed this in another one of our articles, 10 Best Broadcasting Stocks to Buy. Here’s an excerpt from it:
“Forbes reported that the total spending reached $8.5 billion across TV, radio, and digital media in the last election cycle. This was 30% higher than the $6.7 billion projected earlier that year, and 108% more than spending in 2017-2018, which was a record at that time. GroupM projects a record-breaking $15.9 billion investment in political ad spending for the end of 2024.
As campaigns intensify their advertising efforts, especially in the weeks preceding the election, broadcast companies can anticipate a significant rise in revenue, given the heightened demand for airtime to reach voters.
According to Emarketer, 45% of the total digital political ad spending will be seen on CTV (connected TV). As major companies in the networking, entertainment, and streaming industry continue their ban on political content, the major benefit of this spending will go to broadcasting companies.”
Methodology
To compile our list, we sifted through ETFs, stock screeners, and online rankings to compile a list of 15 broadcasting stocks. We then selected 10 stocks that were shorted but at the same time popular among elite hedge funds and that analysts were bullish on. The hedge fund data was sourced from Insider Monkey’s database which tracks the moves of over 900 elite money managers. The stocks are ranked in ascending order of their short interest, as of August 15.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A satellite dish with a view to the night sky, preparing to receive transmissions.
Gray Television, Inc. (NYSE:GTN)
Short % of Shares Outstanding As of August 15: 7.10%
Number of Hedge Fund Holders: 22
Gray Television, Inc. (NYSE:GTN) is a broadcasting company operating in around 180 stations across the US. It is the nation’s largest owner of top-rated local television stations and digital assets serving 113 television markets that collectively reach approximately 36% of US television households.
On September 4, InvestigateTV+, the company’s award-winning news magazine, expanded its clearances for the 2024-2025 season. The program now reaches a wider audience, with the weekday edition available in 46% of the US and the weekend edition in 67%.
Earlier, management reported a 1.6% year-over-year increase in revenue in the second quarter of 2024. This mainly came from political advertising, which was higher than 2020 this time. Core advertising revenue fell 1.5% year-over-year because of the absence of the NCAA final four games, which were broadcast last year but not in 2024.
Q3 projections are also not very high because growth will mostly only come from the Olympics advertising revenue alone, with the company’s 56 NBC affiliates generating approximately $19 million. Under such outlooks, its shares are shorted by 7.10%.
22 hedge fund holders have stakes in the company as of June 30. The largest one is held by Darsana Capital Partners with a position of $21,278,728.
It recently announced a live broadcast of the Harlem Globetrotters game and launched new networks in Ohio and South Carolina. There are comprehensive coverage plans for the 2024 Democratic National Convention.
The company received 8 National Edward R. Murrow awards for excellence in journalism this August, highlighting the company’s commitment to quality journalism and its impact on local communities. making it a top stock for investment.
Miller Value Deep Value Strategy stated the following regarding Gray Television, Inc. (NYSE:GTN) in its Q2 2024 investor letter:
“Our two largest detractors during the quarter were Nabors Industries (NBR) and Gray Television, Inc. (NYSE:GTN), whose share prices were down 17% and 16% respectively during the quarter. We think both company’s share prices are at deep discounts to their long-term fundamental value; we have recently increased both holdings.
Gray Television remained under pressure during Q2, with ongoing marketplace concerns on the company debt leverage. Gray has limited maturities over the next 2 years and recently announced an opportunistic debt repurchase program. After a slow start to political advertising due to weaker than expected primaries, we expect to see a nice ramp in political advertising in the back half of the year. Gray’s strong local TV stations, #1 and/or #2 in 89% of their markets, has the company well positioned to achieve $500-700M in high margin political advertising in 2024. In addition, Gray has been outpacing peers in growing their core business over the past couple of years and still appear to be in the early innings of an improvement cycle. Management has recently retrained their salesforce with a greater focus on expanding their high margin digital market share over the next couple of years. In addition, ATSC 3.0 (industry new IP standard), provides opportunity for Gray to stream more content and capture new high margin digital revenue streams overtime. We see the potential for $2.5B of free cash flow generation over the next 5 years that could allow the company to rapidly de-lever their balance sheet and accrue value to the equity holder. With a greater than 80% earnings and free cash flow yield, and an attractive 6.2% dividend yield, we believe patient investors have potential to be rewarded over the coming years.”
Overall GTN ranks 2nd on our list of the worst broadcast stocks to buy. While we acknowledge the potential of GTN as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than GTN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
