Cable Operators

Funds Buy Sagging Cable Stocks

2/28/2009 7:20 AM Eastern

While cable stocks — along with the rest of the market — were heading far south in the last three months of 2008, some of the biggest mutual funds in the space were adding to their positions, snapping up shares that were at the time flirting with all time lows.

According to Securities and Exchange Commission documents filed over the past few weeks, four of the largest media mutual funds — Capital Research Global Investors, Capital Guardian Trust, Janus Capital and FMR LLC — significantly added to their positions in key stocks like News Corp., Comcast and The Walt Disney Co., while reducing positions in other cable operators like Charter Communications and Cablevision Systems.

For the most part, the funds seemed to concentrate more on snapping up bargains: News Corp. and CBS, two of Capital Research’s biggest buys in the fourth quarter, fell 21% and 44%, respectively, between Sept. 30 and Dec. 31.

There were bargains to be had as well: Cable operator stocks were down a collective 21% in 2008 and programmers fell 47%. Of the programming stocks, News Corp. and CBS fell the hardest. News Corp. was down 54.9% in 2008 and CBS was down 70%.

Janus Capital, the Denver-based mutual fund, was a big buyer of News Corp. stock in the quarter, adding 22.9 million shares. The early backer of Comcast (it added 9.2 million Comcast shares in the period, bringing its total holdings in the No. 1 MSO’s Class A stock to 14.2 million shares) also beefed up on DirecTV (adding 3.6 million shares in the quarter) and Liberty Entertainment (adding 4.6 million shares).

Capital Research Global Investors, managed by media legend Gordon Crawford, also appeared to be bargain hunting in the fourth quarter, adding 60.6 million shares of News Corp., 62.5 million shares of Time Warner Inc. and 17.4 million shares of CBS. Capital Research is a long-time Time Warner shareholder and owns about 257 million shares of the stock.

Capital Research’s sister fund, Capital Guardian, was less active, adding about 2.3 million shares of AT&T and 1.7 million shares of CBS during the quarter.

FMR LLC, the parent of the Fidelity mutual funds, continued its contrarian role in the fourth quarter, with its biggest buy a 20.7 million block of Comcast K stock and adding 12.6 million Discovery Communications shares. Discovery consolidated its ownership into one publicly traded company in September, which added to its value.

Miller Tabak media analyst David Joyce said there were likely two reasons for the buying spree: hunting for bargains and a need to participate in the late-November and early-December market rally.

“No one wanted to miss the Santa Claus rally,” Joyce said of the late-year surge in the Dow, adding that the funds were also likely betting that some of these stocks would gain significant ground as the economy strengthened.

“Large cap companies typically do best first when you come out of a recession,” Joyce said.

He added that the main reason for funds adding News Corp. shares to their portfolios is simple as well — it’s a cheap stock. Joyce said News Corp. was valued at about 3.9 times earnings before interest, taxes, depreciation and amortization, the lowest in his coverage universe. While that valuation is the result of several factors — namely News Corp.’s heavy interest in newspapers and broadcast stations, two areas hit hard by the recession — he added that it shouldn’t be a $6 stock. News Corp. was priced at $6.45 per share on Feb. 26.

And while other mutual funds were snapping up News Corp. and CBS shares, FMR was shedding them. The Boston-based mutual fund giant sold 8.9 million shares of News Corp. in the quarter and 27.4 million shares of Charter Communications stock in the period.

Although contrarian, FMR’s strategy was testament to the tenet that not all cheap stocks are necessarily good bargains, as Charter shares dipped 93% in 2008 to 8 cents each. The MSO’s stock fell to about 2 cents per share last week after Charter announced a restructuring that will include a Chapter 11 bankruptcy filing by April 1 that will make its current equity worthless.

Bargain Shopping
The largest media funds recently altered their cable portfolios.

SOURCE: SEC filings
Biggest Buys
Janus:
News Corp. (A): 22.9M
Comcast (A): 9.2M
Liberty Entertainment: 4.6M
DirecTV: 3.6M
Capital Research:
Time Warner Inc.: 62.5M
News Corp.: 60.6M
AT&T: 32.3M
Capital Guardian:
AT&T: 2.3M
CBS: 1.7M
FMR:
Comcast (K): 20.7M
Discovery: 12.6M
Verizon: 7.7M
Biggest Sales:
Janus:
AT&T: 4.6M
Verizon: 3.3M
Viacom: 709,952
Capital Research:
Comcast (A): 11.6M
Liberty Interactive: 9.1M
Viacom: 2M
Capital Guardian:
Comcast (A): 319,960
Comcast (K): 24,034
FMR:
Charter: 27.4M
News Corp.: 8.9M
AT&T: 3.2M
September