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JP Morgan's Noelle V. Grainger published a report on December 9th. JP Morgan (NYSE:JPM) has come up with a list of stocks in the media and internet sectors that will outperform the competitors and the market. Below is a summary of JP Morgan's discussions on these stocks and sectors. We included our views about these stocks at the end of the article.

Information Services/TV & Radio Broadcasting

The companies in this industry enjoy flexibility and high renewal rates. Even publishers who are exposed to state budget pressure are able to benefit from share gains through diversification. With the introduction of a number of positive catalysts for next year, such as the Olympics and the elections, TV industry revenues are expected to increase by more than 10% and a 2-3% growth in advertising may be seen.

Verisk Analytics (NASDAQ:VRSK) is the best pick for this market segment. It is the market leader in providing risk management solutions. It gives information related to risk to its customers and its ISO brand is its successful market niche in terms of revenue. J.P. Morgan predicts an upside to the company’s valuation for 2012. Currently, its shares are trading at $38.06 and are expected to reach a price target of $42. The company has strong cash flows and has a healthy balance sheet, as seen by its 1.7x net debt/EBITDA ratio. Verisk has a market capitalization of $6.27 billion and its earnings per share of $1.4 are expected to rise to $1.90 by next year.

Internet:

A strong secular growth is driving the internet sector along with an increase in key trends such as social media, local, and video. J.P. Morgan believes that the sector is healthy and due to a large shift to online advertising and eCommerce, it is likely to benefit greatly. Both online advertising and eCommerce will likely see double digit growth and Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), Google (NASDAQ:GOOG), and Facebook will be the likely candidates for this increase in revenue. The increased implementation of smartphones and tablets is seen as a beneficial catalyst for positive trends in this sector.

Google (GOOG) was picked as the best investment stock for this market segment due to a large increase in shares in the higher-growth segment. With the recent acquisition of Motorola Mobility and its importance for Android, Google looks set to capture a higher market share in the internet and mobile phone markets. Google’s stock is currently trading at $623.77 and is expected to reach a target price of $705 by 2012. With one of the largest market capitalizations of $202 billion in the industry, Google also has earnings per share of $29.61, which are expected to reach $42.20 by the end of 2012.

Media:

The next year is expected to see a modest deceleration in growth from an estimated 5% in 2011 to an estimated 4% in 2012 because spending on advertisements is highly correlated to GDP movements. The elections and key political spending in 2012 will likely benefit the industry and top officials have said that advertisers are not going to change their healthy spending patterns heading into next year.

Viacom (VIA.B), a leading entertainment company, has been picked as the best stock for the media market segment in 2012 because of its leading cable assets, discounted valuation, and a substantial buyback of shares. With a dual source of revenue from advertising and high-visibility affiliate fees, cable networks are viewed as worthy investments. Nickelodeon and MTV, alone represent more than 90% of the earnings for Viacom. With the introduction of new content deals, Viacom has seen an increase in affiliate fee growth. Viacom has a dividend yield of 2.3% and its stock is currently trading at $42.81 with an expected target price of $56 by 2012. Viacom’s stock has fluctuated between $35.13 and $52.67 over the last 52-weeks. Despite an expected decline in current P/E ratio of 9.8x to 8.4x, earnings per share of $3.61 are expected to increase to $5.11. The company has a market capitalization of $24 billion.

Telecom, Cable & Satellite:

With the increase in smartphone and tablet sales, J.P. Morgan expects an increase in wireless data revenue and a growth in average revenue per user. The iPad continues to be a dominant market leader in tablets, with Android and Windows rapidly catching up, and this is seen as potential for incremental wireless data growth. Another upside is expected from the persistent recovery in enterprise telecom spending. The implementation of 4G networks will benefit both wireless carrier and tower companies.

Comcast (NASDAQ:CMCSA) has been given an Overweight rating by J.P. Morgan and is the best pick for this market segment. The company is expected to bring a well-diversified cash flow stream from a growth in its cable segment and improvements at NBCU. Currently, its shares are trading at $23.19 and has a price target of $30 is expected by the end of 2012. This 33.4% expected appreciation is in addition to an estimated dividend yield of 2.2%. Comcast has market capitalization of $63.05 billion and earnings per share of $1.18 are expected to rise to $1.64. The company has a P/E ratio of 16.4x.

Our views: This is one of our favorite segments. Apple (AAPL) and Google (GOOG) are the two most popular stocks among hedge funds at the end of the third quarter (see the 10 most popular stocks). Comcast is among the top 50 most popular stocks among hedge funds, and Viacom is among the top 100. The reason we like Apple and Google is that they are expected to grow their earnings by around 20% annually, yet Apple's PE ratio of 14 is less than Consolidated Edison's (NYSE:ED) PE ratio of 16 and Duke Energy's (NYSE:DUK) PE ratio of 15. Google's PE ratio of 21 is almost as low as Altria's (NYSE:MO) PE ratio of 18. Apple could have easily traded at a 25-30 multiple just 5 years ago. For some reason the market ignores Apple's and Google's huge growth potential. Hedge funds are aware of these opportunities and they piled on these two stocks. We urge investors to take a closer look at these two fine companies.

Source: Best Media Stocks for 2012 by JP Morgan