Large media mutual funds appeared to be taking advantage of low-priced stocks and making bets on an improved advertising environment in the third quarter, beefing up on shares of CBS and News Corp. while reducing their positions in distributors like Comcast and Verizon Communications.
According to Securities and Exchange Commission filings over the past few weeks, the four largest mutual funds focusing on the cable space — Capital Research Global Investors, Capital Guardian Trust, Janus Capital Management and FMR LLC — focused on snapping up cheap stocks like CBS (which traded as low as $5.78 per share in July) and News Corp. (which traded around $9.47 per share in July) as well as strong performers such as Discovery Communications (which has had three straight quarters of advertising-revenue growth).
Those stocks were trading near their low points for the year in early July, but rallied in the latter part of the quarter. If they bought in early, those funds likely made a killing. For example, CBS, trading at $5.78 in July, more than doubled to $12.05 per share by Sept. 30 and the stock closed at $13.73 each on Nov. 18. The broadcaster, which owns cable networks Showtime and College Sports Network, has been making noise recently on the retransmission-consent front, claiming it will double its retrans take in 2010. In the same timeframe, News Corp. rallied from $9.47 on July 7 to $14.44 on Sept. 22, a 52% gain.
Discovery shares were more stable — they were up 25% between July 1 and Sept. 30 — but they also showed consistent domestic ad-revenue growth (2% in the first quarter, 1% in the second and 5% in the third) The other programmers are still reporting declines, but are improving. For example, Viacom reported a 6% decline in domestic ad revenue in the second quarter, improving to a 4% decline in the third quarter.
“Generally, ad-reliant stocks like CBS, Disney, Viacom and News Corp., have been on the upswing since the ad market has been improving sequentially every month since April or May, and advertisers are providing strong demand for fourth quarter 2009 ad inventory,” said Miller Tabak media analyst David Joyce.
At Capital Research Global Investors, the $211 billion fund managed by media legend Gordon Crawford, the top buys in the third quarter were AT&T (14.9 million shares); Comcast Class K stock (7.3 million shares); and News Corp. (6.1 million shares). Cap Research sold 12.4 million shares of Verizon Communications, 7.2 million shares of Disney and 8.3 million shares of Time Warner, but still remains among the biggest holders of those stocks. According to SEC filings, it no longer holds shares in Disney, but still owns 111 million shares of Verizon and 90 million shares of Time Warner.
Sister fund Capital Guardian Trust was less active, adding 1.2 million shares of Scripps Networks Interactive and 622,577 shares of Time Warner Cable in the period. Among its biggest sales was Comcast class-A stock (4.8 million shares); AT&T (1.9 million shares); and Disney (1.6 million shares).
Janus Capital Management, the Denver-based mutual fund that was an early backer of Comcast, spent part of the third quarter unloading a good chunk of its holdings in the cable operator. According to the SEC filings, Janus sold 11.8 million shares of Comcast class-A stock in the quarter, reducing its holdings from 27.4 million to 15.6 million shares. The fund giant also reduced its holdings in the only other cable MSO in its portfolio, Cablevision Systems. Janus sold about 806,900 Cablevision shares in the quarter, reducing its stake from 1.3 million shares to 525,636 shares. Among its biggest buys was CBS (12.8 million shares); News Corp. (10.8 million shares); Verizon Communications (2.7 million shares) and Viacom (2.7 million shares).
FMR LLC, the parent of the Fidelity family of mutual funds, took a bit of a break from its usual contrarian stance in the quarter, instead going along with the pack in buying 6.6 million additional shares of CBS stock; 3 million additional Comcast class-A shares and 4.5 million additional Liberty Interactive shares. FMR sold 28.2 million shares of Verizon stock, 11.4 million shares of Comcast Class K and 2.9 million shares of Liberty Global.