Wall Street's fall season has arrived. So which media- and entertainment-sector stocks will be winners during the year's final months, especially given recent signs that the extended rally in the overall market and the sector perhaps has come to an end?
Ask analysts about their top picks, and one gets little agreement and very different selections.
The Hollywood Reporter recently canvassed analysts, and the resulting list of best stock ideas compiled ranges from sector biggies Disney and Time Warner to Lionsgate, Netflix, Electronic Arts and small cable operators.
Barclays Capital analyst Anthony DiClemente tells me he's still betting on Disney as the best in the sector. He has an "overweight" rating and a $32 price target on the company's shares.
He mentions three reasons: First, "stock weakness on the heels of the Marvel deal that creates a buying opportunity." Second, he says an economic recovery in the U.S. can help many of Disney's divisions. Finally, he is "optimistic about Disney's upcoming movie slate" after the release of "Up" brought the company back to its winning ways after a string of boxoffice flops.
By the way, Disney remains the entertainment conglomerate with the biggest market capitalization heading into the year's homestretch, though tech giants including Apple and Google still are worth multiples.
Others also like sector biggies. Goldman Sachs analyst Mark Wienkes recently upgraded the entire entertainment sector, saying he favors Time Warner, which he upgraded from "neutral" to "buy," and Viacom given that they have no local advertising exposure.
Caris & Co. analyst David Miller has a different take, suggesting Lionsgate and Netflix, both of which he rates "buy."
Last month, Miller lauded Lionsgate for blowing away quarterly earnings estimates on "very strong film revenue, plus another model quarter for TV production." He has a $9 price target on the stock.
After Netflix's earnings report last month, Miller raised his 2009 and 2010 estimates. While acknowledging the stock's premium valuation, he reiterated a $54 target price, saying that "Netflix still trades at a discount to its growth rate."
Meanwhile, Miller Tabak analyst David Joyce says he has been weighing his top buy picks with a focus on -- again -- Time Warner and the cable sector, "due to the recurring monthly revenue streams that avoid much of the advertising pressure."
He adds, "We also like Discovery because of that dual revenue stream, although it has somewhat been 'discovered,' " a reference to the stock's strong performance this year.
In the end, Joyce made two recommendations.
"Time Warner I like the most as a stable pick, not expecting it to fall much, because it is cheap and has the AOL-spinoff catalyst, which might help TW de-lever even further," he says. He has a $36 short-term and a $54 long-term price target on TW.
Small cable operator Mediacom is his other pick. "Mediacom is another one that could have the best performances due to turning significantly free-cash-flow-positive this year," he says. Joyce has an $8 short-term and a $10 long-term target on the stock.
Gabelli & Co. analyst Chris Marangi also likes the idea of a cable play, but his favorite remains Cablevision. He rates it "buy," with a private market value (not strictly a price target) of $39.
"Fundamentals remain strong," Marangi says. "A catalyst is the planned spinoff of MSG, which should underscore value in the stock on a free-cash-flow basis and increase strategic options in the future."
Not enough options for those looking for favorites?
Wedbush Morgan analyst Michael Pachter is suggesting a video game stock, but one somewhat maligned of late: Electronic Arts, whose shares he rates "outperform" with a $27 price target.
"It's almost universally reviled, has had pretty poor results for four years in a row, and most people don't think that they have their act together," Pachter says. "I look at their lineup and see pretty solid year-over-year comparisons, a very strong lineup with 'Beatles Rock Band,' 'Brutal Legend,' 'Need for Speed,' 'Dragon Age,' 'The Saboteur' and 'FIFA,' and think that they substantially outperform expectations."
He adds, "Because they trimmed payroll by a lot earlier this year, they're positioned to deliver outsized earnings from any small revenue upside."
Even if the biggest market rally is behind us, media and entertainment stocks likely will face a tougher environment through year's end. Investors will be anxious for clear signs sooner rather than later of a rebound in the advertising market, which could provide another jolt for the ad-driven biggies.