As published on marketwatch.com, Monday November 18, 2019.
The stock to buy when Donald Trump was elected president was the New York Times.
The industry most likely to benefit from the impeachment hearings? “It’s news — it’s going to spike interest in news platforms,” says Neil Macker, media analyst at the stock and fund research company Morningstar.
Early Nielsen data found that 13 million Americans tuned in for the first day of the impeachment hearings this week. That’s just ahead of the numbers watching the first day of Robert Mueller’s testimony earlier this year. But it’s far below the numbers who watched the first day of James Comey’s testimony in 2017 — suggesting, though not proving, that the public might be showing signs of “impeachment fatigue.”
The 2016 election and its contentious aftermath have been a boon for some news stocks.
A long and bitter impeachment process on Capitol Hill could provide a second “Trump bump” across news media. This won’t be the O.J. Simpson trial, which generated a windfall for cable TV in 1994-95. But it will provide news flow and drama, staples of today’s media.
The New York Times Co. stock NYT, -0.56% has outperformed the broad S&P 500 index SPX, -0.12% nearly fourfold since the day of Trump’s election in 2016, producing returns of nearly 170% against 46% for the broad index.
Fox Corp. now trades on 13 times forecast per-share earnings for the next 12 months, a significant discount to the broader market. The S&P 500 SPX, -0.12% trades on about 17 times forecast per-share earnings.
Speaker of the House of Representatives Nancy Pelosi rolled the dice on impeachment hearings against Trump last month, after rebuffing calls for years from the liberal wing of the party.
Her decision came in response to the news that President Trump had asked the president of Ukraine to investigate the financial affairs of Joe Biden’s son Hunter. Trump hit back at Pelosi, accusing her of “treason” and saying she, not he, should be impeached.
Fox News already won the first round among the major networks, according to Nielsen ratings. Some 3.3 million people watched Pelosi’s announcement on Fox News, compared with 2.4 million on MSNBC and 1.5 million on CNN, the company said. MSNBC has traditionally leaned more to the left, and some media observers argue CNN has increasingly followed suit in recent years.
Fox Corp. FOX, +0.10% FOXA, +0.13% separated from 21st Century Fox in February when Disney DIS, +0.22% acquired certain entertainment assets from the latter entity. Fox Corp. and MarketWatch parent News Corp NWS, -0.46% NWSA, -0.16% share common ownership.
The New York Times, Fox News, CNN and MSNBC did not respond to requests for comment.
Cable news channels across the board saw a surge in viewers after Trump entered the presidential race in 2015, and the higher levels of viewer interest have carried through to some extent since the election.
Data published by the Pew Research Center show that the big three cable news outlets — CNN, MSNBC and Fox — saw aggregate revenues jump from $3.9 billion in 2015 to $4.5 billion in the election year of 2016, and they were up again, to $5.3 billion, last year.
Meanwhile, profits have risen faster than revenues, because broadcasting is an “operationally levered” business — meaning that once you’ve spent the money making the programs, it doesn’t cost you that much extra to broadcast it to another 10 or 100 or 1 million viewers.
According to Pew, the big three cable news operations have twice the revenues they did in 2009 but about 20% fewer newsroom employees. So a surge in viewers and advertising revenue mostly falls straight through to the bottom line.
The profits of three channels jumped from $1.9 billion to $2.4 billion from 2015 to 2016 and rose to $2.8 billion last year.
Viewership of all three skews heavily toward older viewers, benefiting from an aging population and retiring baby boomers.
Next year was already shaping up to be a good year for cable news, largely because of the election. The question is going to be how much impeachment hearings will add.
Fox’s stock is the most exposed to cable news. CNN is a tiny part of telecoms behemoth AT&T T, +0.24% , whose market value is $275 billion. MSNBC is a small part of cable giant Comcast CMCSA, -0.61% , which has a market value of $210 billion.
By contrast, Fox is valued at just $20 billion and is much more exposed to the ups and downs of the news operation.
A big bump in cable viewers will benefit all three. But the effects on AT&T’s and Comcast’s stocks will be small, and will largely rise or fall on the fortunes of their other activities, Macker said.
There are reasons to think political events tend to energize most the side that feels embattled. Donald Trump’s shock election victory in 2016 caused a surge in news demand from the left and maybe the center, helping, for example, the New York Times.
Mark Thompson, CEO of the New York Times, told CNBC that there was a rise of approximately 132,000 paid subscriptions in the three weeks following the Nov. 8 election, a tenfold increase over the year-earlier period.
At the moment, Trump isn’t expected to face a significant challenge for the 2020 Republican nomination. The big battle will take place among the Democrats. If the next six months are full of impeachment hearings, that could fill air time and provide more momentum for Fox News.
However, the stock market is reasonably good at incorporating known news into stock prices, and, if there is going to be a significant Trump bump for Fox stock, it hasn’t shown up yet in the price.
Fox Corp. now trades at $33.40, down from $37 at the time of the demerger in February. Class A shares of Fox are down 15.5% over the past three months, compared with a 1.5% loss for the Dow Jones Industrial Average DJIA, -0.07% and a 1.5% decline for the S&P.
Raymond James Financial, an investment bank and financial-services company, said in a research note last month that the stock market would rally if Trump resigned, a scenario it notes as having a “low probability.”
“After the initial shock, we think the market rallies as Pence is a predictable, traditional, conservative choice,” Raymond James said, referencing Vice President Mike Pence.
For his part, Trump tweeted TWTR, +1.85% that it would be a disaster for the stock market if he were impeached: “Do you think it was luck that got us to the best Stock Market and Economy in our history. It wasn’t,” he wrote.