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 iHeart Media Inc. (NASDAQ:IHRT) 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 radio tower with a setting sun in the background, symbolizing the power of broadcasting.
iHeart Media Inc. (NASDAQ:IHRT)
Short % of Shares Outstanding As of August 15: 4.42%
Number of Hedge Fund Holders: 14
iHeart Media Inc. (NASDAQ:IHRT) is primarily a radio broadcasting company, that provides listeners with many music and entertainment options through podcasting and internet radio, reaching millions of listeners every day.
The company is the exclusive audio partner for NBC’s 2024 Summer Olympics coverage. A recent partnership between iHeartPodcasts, Universal Television, and Wolf Entertainment resulted in the distribution of “Law & Order: Criminal Justice System” through iHeartPodcasts, premiering on August 22.
On August 29, the company announced the return of the House of Music at the 2024 iHeartRadio Music Festival, where fans can explore interactive rooms featuring their favorite artists and brands. It will open on September 20 and 21 at Toshiba Plaza outside T-Mobile Arena.
The Digital Audio Group made a 31% contribution to the total revenue in Q2 2024, with a 10% year-over-year improvement. The company’s overall revenue was $929.09 million, improving 1% year-over-year. This revenue growth was driven by political ads, and without it, the increase would only be 0.1%.
Airtasker, a global platform for local services, formed partnerships with iHeart Media Inc. (NASDAQ:IHRT) and TelevisaUnivision to accelerate growth in the US on September 3. These partnerships will reach over 300 million people in the US, and amount to a total of $9.75 million expansion.
iHeart Media Inc. (NASDAQ:IHRT) reached 110 million Americans monthly through 3,000+ websites, increasing its social media presence 7 times, and positioning for success in the broadcast industry. 14 hedge funds are long in the company, and AQR Capital Management has the largest stake of $4,261,605.
Palm Harbour Capital made the following comment about iHeartMedia, Inc. (NASDAQ:IHRT) in its Q1 2023 investor letter:
“The second largest detractor was iHeartMedia, Inc. (NASDAQ:IHRT) (-37.5% -58 bps), the American radio and podcasting company. The company suffered two self-inflicted wounds, which will impact the first quarter. The first, which the company flagged as temporary was a change in sales incentives. Apparently, they changed their sales force behaviour to sell more lower margin products at the expense of higher margin products (where management believed it should have been incremental volumes of lower margin not a switch). The second was their guidance for interest rate expense. The company did not hedge their floating term loan and is suffering from the higher interest rate environment, something you do not want to see in a highly levered company. Their debt maturities are years out, but every quarter that passes where free cashflow is low will make refinancing more difficult. Up until now, the company has been executing well, and their podcast business is growing strongly. Management has also been buying shares and we believe their major shareholder, if allowed by the Federal Trade Commission, is potentially interested in owning the business.”
Overall IHRT ranks 7th on our list of the worst broadcast stocks to buy. While we acknowledge the potential of IHRT 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 IHRT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. This article is originally published at Insider Monkey.
