It is still awfully quiet as the final week of summer is underway. The market has trended slightly higher but has spent the entire month in a range of about 2% from high to low. Media stocks have done pretty well with the big entertainment conglomerates, including the cable network owners, leading the way. Cable stocks have taken a breather, while the satellite companies are moving higher.
In communications, the excitement has been about Apple’s
(AAPL) victory over Samsung
(SSNLF) in their patent trial. Initial Wall Street response was to bid up Apple on its improved competitive positioning vs. other phone-makers, especially the Android suppliers. Investors appear a little worried about the long-term impact on Google
(GOOG), owner of Android, but after a sharp drop of 3% first thing after the verdict was reached, Google shares have bounced back and are just below their 2012 high. Given the fast-moving nature of smartphone technology and the desire of wireless carriers to diversify and not rely too heavily on Apple, I have a hard time believing there will be a huge impact from the ruling. I see it as a positive for Apple and small negative for everyone else but not enough to warrant a significant change in the smartphone or wireless carrier landscape. Further developments in this trial and the many other patent disputes could change my view. I have not done any trades in response to Apple’s victory.
(See also: Patent Overreaction Follows Samsung Verdict
In this slow period, I have my eyes on a few things.
(AMCX) shares continue to drift lower with worries about the lost carriage on Dish Network
(DISH) dominating sentiment toward the shares. Breaking Bad
wraps up its run this Sunday. The trial with Dish Networks over VOOM begins in mid-September. I made a so far timely sale of AMC Networks shares when it jumped up on the solid June quarter earnings report. Despite about a 15% decline since then I am not looking to buy it back quite yet. I think Charlie Ergen just might be serious about proving that Dish can withstand loss of some popular programming as he attempts to rein in rapidly rising programming costs. A victory in the VOOM trial or getting back on Dish Network will pop AMC shares a quick 15-20% but I want to see them really cheap before I own them again. I am thinking $30-35.
Movie theater stocks have been sluggish since the Aurora shooting. The box office has been a little weaker since then although it is impossible to conclude that the shooting is the reason why. The summer box office is looking down a few percent but 2012 is still up low to mid-single digits. Last summer was an all-time record so I am not reading anything secular into the slightly down 2012 summer. I have added to my position in Carmike Cinemas
(CKEC) as the shares have pulled back, repurchasing the shares I sold earlier this year to capture gains. I like how Carmike has cleaned up its balance sheet and is producing financial results consistent with its larger competitors. I no longer see a reason for a significant discount valuation on the shares relative to Cinemark Holdings
(CNK) or Regal Entertainment
Investors showed no enthusiasm for the new deal Dreamworks Animation
(DWA) struck with 20th Century Fox for distribution of its films starting next year. The terms appear in line with Wall Street expectations, possibly slightly improved on digital and domestic TV distribution. Although it was no longer rumored, the new deal does appear to put to bed the idea that Dreamworks Animation could be sold to one of the larger studios. For News Corporation
(NWS), parent of 20th Century Fox, the deal offers only upside. Dreamworks Animation films are usual popular so the 8% distribution fee is probably gravy. In addition, there could be some ability to coordinate release dates to maximize box office potential with its own slate of popular animated films. I think the biggest benefit to News Corporation is adding predictability and stability to the highly volatile film studio operating profits. The studio will exert greater influence on News Corporation’s financial results once publishing assets are split. A more stable film division will allow the consistent, high growth cable networks to more brightly shine.
Apple, Google, Carmike Cinemas, and News Corporation are net long positions in the Entermedia Funds. Entermedia is a long/short equity hedge fund focused on media, entertainment, leisure, communications and related technologies. Steve Birenberg is co-portfolio manager of Entermedia, owns a stake in the funds' investment management company and has personal monies invested in the funds. Liberty Apple and Google are widely held by Northlake Capital Management LLC, including in Steve Birenberg's personal accounts. Steve is sole proprietor of Northlake, a long only registered investment adviser.
This column was previously published by SNL Kagan on www.snl.com.
No positions in stocks mentioned.
Entermedia is a long/short equity hedge fund focused on media, communic=
ations, and related technologies. Steve Birenberg is co-portfolio manager o=
f Entermedia, owns a stake in the Funds' investment management compan=
y, and has personal monies invested in the Funds. CBS and Discovery Communi=
cations are widely held by Northlake Capital Management, LLC, including in =
Steve Birenberg's personal accounts. Steve is sole proprietor of Nort=
hlake, a long only registered investment advisor.
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