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 Nexstar Media Group Inc. (NASDAQ:NXST) 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).
An aerial view of a broadcasting company’s television stations, showing the power of the company’s media presence.
Nexstar Media Group Inc. (NASDAQ:NXST)
Short % of Shares Outstanding As of August 15: 6.41%
Number of Hedge Fund Holders: 34
Nexstar Media Group Inc. (NASDAQ:NXST) is a media company that broadcasts local news, sports and entertainment content to about 68% of the total US households, covering 200 stations in 116 US markets.
President of Networks, Sean Compton, sold 3,930 of his company shares on August 16, with 10,684 remaining shares. Executive VP and CRO, Michael Strober, sold all of his shares (1,076) on August 21. The director, Armstrong D Geoffrey, sold 3,505 shares on August 26. Executive VP and General Counsel, Rachel Morgan, sold all of her shares (6,196) on August 27.
Before all of this insider selling, the company’s shares were already shorted by 6.41% as of August 15. In the second quarter of 2024, 34 hedge funds were long in the company, where Citadel Investment Group is the biggest stakeholder with a value of $113,527,100.
Q2 generally looked great with political advertising generating a record revenue. Overall revenue year-over-year growth was 2.34% , translating into a revenue of $1.27 billion.
This quarter features the launch of NewsNation, a 24/7 cable news network, providing live coverage of recent news events. It has also secured the rights to broadcast PAC-12 football games and the 2024 Snoop Dog Arizona Bowl on The CW.
It is expanding content offerings with new premier shows like Trivial Pursuit and Scrabble, and renewed series like All American and Wildcard. With multiple awards for journalistic excellence over time, the company has built a reputation and is positioned for growth and success.
Here is what Richie Capital Group has to say about Nexstar Media Group, Inc. (NASDAQ:NXST) in its Q1 2022 investor letter:
“Nexstar Media Group (NXST up 24.8%) – The television broadcasting and digital media company surged during the quarter after presenting at an investor conference where management pointed to a strong 2022 for both political advertising and retransmission. They have exposure to more than 80% of markets with competitive mid-term political races. NXST is developing new ad categories such as sports betting and they are focused on expanding digital ad revenue and providing digital solutions to local advertisers. Auto advertising will return in the fall as auto dealerships re-enter the market to sell their replenished inventory.”
Overall NXST ranks 3rd on our list of the worst broadcast stocks to buy. While we acknowledge the potential of NXST 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 NXST 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.