Media Talk

Twitter Updates

    Twitter follow me on Twitter
    Syndication
    Recommended Picks
    More recommended titles in our aStore...
    Google Ads
    Seeking Alpha Certified

    ...brought to you by Steve Birenberg and...

    Northlake Capital Management

    July 01, 2014

    Mid Cap and Value Remain in Favor

    There are no changes to Northlake’s Market Cap and Style models for July. The favored themes remain Mid Cap and Value for at least another month. Given the strength of the current signals, I think that Mid Cap and Value probably will last at least two more months but given volatile economic data and 2014’s sharp thematic market rotations anything is possible. With no changes for July, Northlake client positions invested with the models will continue to own the S&P 400 Mid Cap (MDY) and the Russell 1000 Value (IWD).

    The models were quite stable this month. Both signals got slightly stronger but that was due more to the two month smoothing process than to changes in the underlying indicators. The Mid Cap signal strengthened the most due to the rebound in the technical indicators thanks to the two month rally in small and mid cap stocks. Small and mid cap stocks struggled early in the year, producing negative returns through April even as the large cap S&P 500 rallied. These sectors caught up in May and June and improved the technical indicators in the model relative to the end of April. With the end of April data dropping out of the two month average this month, the Mid Cap signal got a little stronger.

    Performance of the models was good in June with value out performing growth and mid caps easily outperforming large caps. So far in 2014, the Market Cap Model is ahead of the S&P 500 but the Style model is trailing the benchmark.

    MDY and IWD are widely held by clients of Northlake Capital Management, LLC, including in Steve Birenberg’s personal accounts. Steve is sole proprietor of Northlake, a registered investment advisor. Northlake’s regulatory filings can be found at www.sec.gov.

    Posted by Steve Birenberg at 10:46 AM in Models

    June 02, 2014

    Another Month for Mid Cap and Value

    There are no changes to the recommendations of Northlake’s models for June. The Market Cap model continues to recommend mid cap and the Style model still favors value. As a result of the latest signals, Northlake client investments in the S&P 400 Mid Cap (MDY) and the Russell 1000 Value (IWD) will be held for at least another month.

    There was little underlying movement in the models. The only individual factor to changes was a shift toward growth for the insider buying indicator in the Style model. This is interesting given that growth stocks were pummeled in March and April. At least relative to management teams at value companies, it appears that insiders at growth companies saw their stock price declines as buying opportunities.

    Overall, the Style model remains quite firmly in value territory with twice as many of its indicators favoring value as growth. The Market Cap model has slowly edged toward a large cap signal over last few months. Both models are reflecting the recent trends in the market and the mixed economic data over the first part of the year.

    Recent performance of the models has been below average. During April, the mid cap signal was OK, gaining 169 basis points against a rise of just 79 basis points for small caps. However, large caps gained 210 points. Year to date, the Market cap model has gained just shy of 3% versus an increase of just over 4% for the S&P 500. The Style model gained 141 basis points last month, trailing both the S&P 500 and the growth index that gained 304 basis points. A good question is whether this represents a dead cat bounce for growth following the April and May shellacking. Year to date, the Style model has gained just over 2%.

    MDY and IWD are widely held by clients of Northlake Capital Management, LLC, including in Steve Birenberg’s personal accounts. Steve is sole proprietor of Northlake, a registered investment advisor. Northlake’s regulatory filings can be found at www.sec.gov.

    Posted by Steve Birenberg at 09:34 AM in Models

    May 28, 2014

    A Bubble in Stock Splits

    Several companies held in Northlake client portfolio recently announced stock splits. Discovery Communications (DISCK) and Liberty Media (LMCA) announced stock splits that will become effective over the summer. Apple (AAPL) also announced a split effective in early June. These announcements follow Google issuing new non-voting shares as a 2 for 1 split. As a reminder, what used to trade as GOOG is now GOOGL and new non-voting GOOG shares were distributed to create a 2 for 1 split.

    Discovery will complete a straightforward 2 for 1 split by issuing one new DISCK share for each currently outstanding share of DISCK and DISCA. DISCK is non-voting stock, while DISCA has one vote. There are also ten vote per share DISCB shares. Discovery has been a heavy buyer of its own stock, focused on the lower priced DISCK. The buybacks had reduced the liquidity in the DISCK shares which were recently trading at a wider discount to the DISCA shares. The plan announcement worked beautifully as DISCA, and DISCK both rose sharply with DISCK rising several percent more and reducing the discount. The new DISCK shares will be distributed on August 6th.

    Liberty Media will distribute two shares of newly created, non-voting Class C shares for each share of LMCA and LMCB on July 10th. This is effectively a 2 for 1 split but instead of giving each shareholder an extra share of what they already own, new non-voting shares will be issued. This is similar to the Google split without the added complication of changing ticker symbols. The concept for both companies is to issue shares that do not dilute the control of current shareholders, in particular, the control of the founders. In the case of LMCA, investors are interpreting the issuance of new LMCC shares as a signal that Liberty may have a large acquisition up its sleeve where they would be willing to issue equity. In turn, that would mean, that management sees the current valuation of LMCA and LMCB as full --- you issue shares instead of paying cash when the shares are richly valued. The combination of issuing non-voting shares and the possible implications are contributing to lagging performance for LMCA so far this year.

    AAPL is keeping this pretty straightforward by completing a 7 for 1 split. Yes, 7 for 1 is unusual but like most splits it just additional shares of what you already own and Apple only has one class of stock to begin with. Apple investors will receive 7 shares of AAPL for each current share they hold on June 9th. AAPL is signaling its confidence in the company’s outlook with the split and also bring the shares down to a more normal price (around $90 at today’s near $630).

    Splits have no economic impact. You own the same value in the stock as you owned previously. Splits can signal confidence from management. Splits can also be used to accomplish other corporate purposes such as what Google, Liberty Media, and Discovery Communications did as described above.

    AAPL, DISCK, GOOG, GOOGL, and LMCA are widely held by clients of Northlake Capital Management, LLC, including in Steve Birenberg’s personal accounts. Steve is sole proprietor of Northlake, a registered investment advisor. Northlake’s regulatory filings can be found at www.sec.gov. AAPL, GOOG, GOOGL, and LMCA are net long positions in the Entermedia Funds. Steve is portfolio manager and managing partner of Entermedia, long/short equity hedge funds focused on media, entertainment, leisure, communications, and related technologies.

    Posted by Steve Birenberg at 01:29 PM in Stocks

    May 16, 2014

    CBS Healthy Despite Share Turbulence

    CBS Corporation (CBS) reported slightly better than expected March quarter results. It was not enough to turn the recently negative sentiment in the shares, however. The day after the report CBS closed down a little over 2% after falling nearing 5%. Year-to-date CBS is down 11% despite good earnings, positive news on capital allocation, and a confident management outlook.

    I think the stock is caught up in two negative trends. First, consumer discretionary stocks, including media, are seeing heavy profit taking after huge gains in 2010 thru 2013. Second, I think a lot of hedge funds and mutual funds with a growth strategy have used CBS and other media stocks as core holdings. CBS has been caught in the rotation from growth to value that began in early March despite the fact that there seems little to worry about on business fundamentals.

    The key driver of CBS shares is the fact that the company will likely buyback nearly 20% of its shares this year without stretching its balance sheet at all. In fact, next year an additional 15% buyback looks likely if the company merely reaches its debt target…a leverage level that is still investment grade.

    The share buybacks are being driven primarily by excellent business fundamentals. CBS has performed well on advertising, grown its subscription fees, increased profit contribution from content it creates, and strictly managed its expense structure to produce record high profit margins. The company has also managed its asset mix including the spinoff and upcoming exchange offer for its outdoor business. The bottom line is CBS is a more profitable, less cyclical, better managed, more shareholder friendly company than it has ever been.

    Investor concerns surround a mixed advertising environment over the past six months, long-term worries about the TV business model, and the upcoming Aereo decision at the Supreme Court. One possible new worry is that following this year’s accelerated share buyback, the company could turn its eye toward acquisitions.

    Despite the recent pullback, the stock has done very well, up 10 times from the summer of 2009. Nevertheless, CBS still trades at a discount to its peers, which I see as unwarranted. I think the pullback has created a buying opportunity and believe the stock can move to the high $60s or 17 times 2015 earnings. Even better, I think you can make a strong case that 2015 estimates will prove too low by 6-8% based solely on the reduced shares outstanding from the upcoming CBS Outdoor (CBSO) exchange and further buybacks.

    CBS is widely held by clients of Northlake Capital Management, LLC, including in Steve Birenberg’s personal accounts. Steve is sole proprietor of Northlake, a registered investment advisor. Northlake regulatory filings can be found at www.sec.gov. CBS is a net long position in the Entermedia Funds. Entermedia is a long/short equity hedge fund focused on media, communications, leisure, and related technologies. Steve Birenberg is the portfolio manager of Entermedia, has personal monies invested in the funds, and controls Entermedia’s General Partners.

    Posted by Steve Birenberg at 10:35 AM in CBS

    May 09, 2014

    Quiet Quarter at Liberty Media

    Liberty Media (LMCA) had a quiet March quarter earnings report. Earnings do not really matter to LMCA as the stock trades relative to its asset value. As a reminder about 2/3rds of the asset value is a 51% stake in Sirius XM (SIRI). Another 25% is a 26% stake in Charter Communications (CHTR). The other large investments are a 30% stake in Live Nation Ticketmaster (LYV) and ownership of the Atlanta Braves baseball team. By the time LMCA reports each of its publicly held investments has already reported so focus is more on commentary plans for those investments or for the structure of LMCA.

    SIRI reported a good quarter that seemed to offset recent investor worries about the company’s growth trajectory. Financial metrics were good but the focus is on subscriber metrics and those were mixed but did not produce some hoped for upside in net subscriber guidance. LMCA indicated that SIRI would be buying back its own stock aggressively and that LMCA would not be participating in the sales. This is a nice vote of confidence in SIRI.

    CHTR and LYV reported good results as well in the past few weeks so it appears that the core assets of LMCA are good shape. This means focus can be on the future of LMCA. Earlier this year, management announced a plan to create two tracking stocks: Liberty Broadband for CHTR and associated smaller investments and Liberty Media for SIR, LYV, the Braves and other remaining investments. In a slight adjustment to the plan, Liberty Broadband will now be a separate company rather than a tracking stock. I see little impact from this change as there are plusses and minuses to the tracking stock structure.
    LMCA shares have dropped 12% this year mostly reflecting a sharp decline in SIRI doe to the aforementioned fears about is future growth. A recovery in SIRI shares is necessary to get LMCA moving again to the upside. I think continued good earnings reports from SIRI, including a pickup in subscriber growth will be the catalyst. SIRI’s massive share buyback will also help. SIRI is not unlike DirecTV (DTV) which has thrived a a stock even as the growth rate slowed because management used the high free cash flow to fund a consistent, large share buyback over many years. SIRI shares are still more highly valued than DTV on traditional measures which creates some of the controversy. But DTV does now have 20% plus growth in free cash flow in its profile, something for which SIRI deserves a premium valuation.

    Ultimately, an investment in LMCA is an investment in John Malone, oe of the most successful investors in recent history, especially when it comes to media investors. I have said it before but here it goes again: In Malone We Trust.

    LMCA is widely held by clients of Northlake Capital Management, LLC, including in Steve Birenberg’s personal accounts. Steve is sole proprietor of Northlake, a registered investment advisor. Northlake’s regulatory filings can be found at www.sec.gov. LMCA is a net long position in the Entermedia Funds. Steve is portfolio manager and managing partner of Entermedia, long/short equity hedge funds focused on media, entertainment, leisure, communications, and related technologies.

    Posted by Steve Birenberg at 01:54 PM in LCAPA

    © 2012 Northlake Capital Management | 1604 Chicago Avenue Suite 4
    Evanston, IL 60201 | 847-226-9713 | info@northlakecapital.com

    privacy policy | site design by windy city sites

     

    Nothlake Home Media Talk Home