We recently compiled a list of the 10 Worst Performing NASDAQ Stocks in 2024. In this article, we are going to take a look at where Warner Bros. Discovery, Inc. (NASDAQ:WBD) stands against the other Worst Performing NASDAQ Stock in 2024.
Factors Driving Market Growth
Markets have been soaring for the better part of the year, with pullbacks acting as entry levels from where investors have joined and pushed the market higher. While artificial intelligence was one of the factors that drove many tech stocks higher, earnings results that were better than expected also had a significant impact.
Similarly, a resilient US economy that has stayed clear of recession amid high interest rates and inflation has also supported the upward momentum. With the NASDAQ and other major indices at all-time highs, investors are becoming increasingly concerned whether the strong upward momentum is sustainable.
READ ALSO: 10 Most Promising Future Stocks According to Analysts and 10 Most Promising Growth Stocks According to Hedge Funds.
Challenges and Investor Concerns
Valuations appearing overstretched after one of the longest bull runs are one factor that is sending jitters among the investment community. Similarly, concerns over the negative impact of high interest rates and uncertainty over the US election are slowly curtailing the upward momentum.
Bryn Talkington, managing partner of Requisite Capital Management, believes markets will remain choppy heading into year-end owing to the uncertainty around the US election.
“Until the election is over and we can confirm gridlock, I think at the headline number we’re not going to do much, but I think underneath the surface we’re going to see the haves and have nots,” she said.
Nevertheless, it is the impact of the soaring geopolitical tensions in the Middle East that threatens to affect supply lines that are keeping the markets on edge. The prospects of energy prices surging and fueling inflation on Israel attacking Iran is also taking a significant toll on investor’s sentiments on equities.
While interest rate cuts were expected to be the catalyst to push the equity markets to record highs, that was not the case, as everything seemed to have already been priced. Paul Christopher, head of investment strategy at Wells Fargo Investment, believes the US Federal Reserve is unlikely to cut aggressively as the better-than-expected jobs report in September and renewed worries of a spike in inflation act as a deterrent.
“Just really not ready to cut quite as aggressively as the markets had previously priced. I think if you take November from a half a point down to a quarter point hike, that’s not really a big deal, but it does require some adjustment in markets. There may be some adjustments to rate expectations for December and January as well,” he told CNBC’s “Squawk Box Asia” earlier this month.
While the US economy does not show enough deterioration to justify aggressive cuts, there are stocks listed on the NASDAQ that have underperformed, attributed to a number of factors. Top on the list are companies whose core businesses are negatively impacted by high interest rates that tend to affect consumer purchasing power.
Likewise, some of the worst-performing stocks in the NASDAQ have also taken a hit on high inflation. While inflation has started showing signs of edging lower even as the Fed continues to cut rates, some of the worst-performing stocks are showing signs of bottoming out as macroeconomics improves.
The October BofA Global Fund Manager survey indicates that investors are more optimistic than they have been in four years. 74% of investors think the United States will avoid a recession, demonstrating their optimism about the economy.
Likewise, Michael Hartnett, an investment strategist at BofA, said that investor sentiment is rising due to expectations of further rate cuts by the U.S. Federal Reserve and hopes that Beijing will release more stimulus to strengthen its economy.
Our Methodology
We utilized a stock screener to find NASDAQ-listed stocks with market caps exceeding $2 billion as of October 16. We then sorted the stocks in descending order based on their year-to-date share price performance. From this dataset, we identified the NASDAQ stocks with the largest YTD share price declines as of October 16. The following stocks are listed in descending order of their share price performance.
At Insider Monkey, we are obsessed with 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).
Warner Bros. Discovery, Inc. (NASDAQ:WBD)
Year to Date Gain: -33.45%
Number of Hedge Fund Holders: 48
Warner Bros. Discovery, Inc. (NASDAQ:WBD) is a communication services company that operates as a media and entertainment company. The company creates and distributes content and brands across television, film, and streaming.
The stock has declined 33.45% year to date, underperforming the overall market. The underperformance has been fueled by disappointing second-quarter results whereby the media giant posted a more considerable than-expected loss of $4.07 a share as revenue also fell short of expectations at $9.7 billion amid declines across all business segments.
Warner Bros. Discovery, Inc. (NASDAQ:WBD)’s underperformance has also been fueled by the company’s challenges in linear advertising. In an environment of cord-cutting and other shifts in the media industry, the media giant has found it challenging to secure distribution deals.
The company’s challenges have been exacerbated by the fact that the media industry, the TV and streaming industries, are going through a difficult moment. Due to market saturation, the growth of streaming subscribers has slowed to a crawl, and the cable television industry is still contracting.
At the same time, intermediaries like Warner Bros. Discovery, Inc. (NASDAQ:WBD) are finding it more and more costly to operate in the TV industry. The cable giant must now compete with Amazon for the rights to broadcast a limited number of NBA games.
Nevertheless, the company’s outlook has improved with the signing of a multiyear distribution agreement with Charter Communication. The pact opens the way for the integration of linear video and direct-to-consumer streaming services expected to offer more value to Warner Bros. Discovery, Inc. (NASDAQ:WBD) customers. The updated deal includes increased fees Charter will pay to carry Warner Bros.
In addition to growing its subscriber base, Warner Bros direct-to-consumer (DTC) division is just beginning to expand internationally and increase its advertising revenue. The stock was held by 48 hedge funds in Q2 2024.
Here is what Bonhoeffer Capital Management said about Warner Bros. Discovery, Inc. (NASDAQ:WBD) in its first quarter 2024 investor letter:
In remembrance of Charlie Munger, I listened to and read his investment speeches in Poor Charlie’s Almanac. His speech to the University of Southern California business school specifically dealt with the application of worldly wisdom to investment management and business. There were five ideas presented by Munger in that speech which are particularly relevant in the Bonhoeffer portfolio. First, over the long term, it’s hard for a stock to earn more than the underlying business earns. As an illustration of this principle, we examined two firms, Old Dominion Freight Line (ODFL) and Warner Bros. Discovery, Inc. (NASDAQ:WBD).
WBD is an example of a value stock whose value has been impaired by a declining intrinsic value over time. Historically, WBD has been consolidating media content and distribution firms. However, the media content and distribution industry has been fragmenting over the past 20 years, with many new competitors and lower barriers to entry. Based upon Morningstar’s estimates, WBD is almost always undervalued, but stock price declined by 13.4% per year less than intrinsic value which declined by 5% per year, which is still a disaster compared to the index which increased by 12.7% per year. The average RoE was 7.2% and was declining through the period and ended negative. The chart below shows both the stock and Morningstar’s estimate of its intrinsic value over time.
These trends of growth and their effects on returns are reflected in the new investments we have invested in and those firms we have sold recently. We have sold most of our telecom and media firms (which have had flat to declining intrinsic values over time). These firms have been replaced by consolidating capital light distribution firms and specialized financial services firms (which have had increased intrinsic value over time) one of which is described below.
Overall WBD ranks 5th on our list of 10 Worst Performing NASDAQ Stocks in 2024. While we acknowledge the potential of WBD as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than WBD, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
