News Corp: A Good Investment In 2012

| About: News Corporation (NWSA)

News Corp (NASDAQ:NWSA) is a leading global media company. It owns several famous brands, including Fox, WSJ, and Star TV, as well as several other media businesses. Though NWSA had a mixed path in 2011, the stock returned 24% over the past year, which beat the market by a large margin. NWSA is now trading at about $19.

On January 16, News Corp agreed to acquire a minority stake in MOBY Group, aiming to bolster its businesses in the Middle East media market. On December 23, News Corp announced its stock repurchase program. Specifically, the company will acquire up to $5 billion of its outstanding shares of Class A and Class B common stock in 2012.

News Corp has a market cap of nearly $50 billion and a beta of 1.63. It is currently priced at about 14 times its forward earnings. Its EPS is expected to grow 22% annually over the next five years. It also has a dividend yield of 1%. S&P recommends the stock as a "Buy," giving it a one-year target estimate of $129, or a 26% return. News Corp is also a top pick for Thomson Reuters, which gives it a positive score of 10 on a 1-10 scale, and Market Edge, which recommended investors hold the company.

Peers Comparison

Gannett Co. (NYSE:GCI) is a media and marketing solutions company. The company has a market cap of $3.5 billion and has a beta of 2.83. It's currently trading at 7 times its estimated 2012 EPS, while its EPS is expected to grow at 6% annually for the next five years. In addition, the stock offers a 2.2% dividend yield. GCI lost 9% last year. S&P offers a "Buy" on GCI. Thomson Reuters gives a positive score of 8 on a 1-10 scale. Market Edge recommends a "Long" but suggests investors not initiate new positions.

Time Warner Inc. (NYSE:TWX) is a media and entertainment company that provides network, filmed entertainment, and media publishing. The company has a market cap of $37 billion and trades at a beta of 1.22. It has a forward PE of 11 and an expected EPS growth rate of nearly 13%. It also pays a dividend yield of 2.5%. In 2011, TWX gained 16%. S&P recommends a "Buy" with a 12-Month price target of $42 per share, which gives about 12% return. Thomson Reuters scores 8 for TWX on a 1-10 scale, while Market Edge gives a "Buy" on the stock.

Hedge Fund Position

Hedge funds were extremely bullish about News Corp in the second half of 2011. The number of hedge funds invested in the company increased from 39 at the end of June to 57 at the end of September. The total volume of hedge fund investment also increased, moving from $4.2 billion to $6.2 billion over the third quarter. Chris Hohn's Children's Investment Fund was News Corp's largest hedge fund stakeholder at the end of the third quarter. The firm initiated a whopping new position in the stock during the third quarter, with nearly 54 million shares worth $833 million. Mason Hawkins' Southeastern Asset Management took the second place with 52 million shares. Stephen Mandel, Eric Mindich, Seth Klarman, and John Paulson were among News Corp's large stakeholders, and they were all bullish about the stock in Q3.

There were 21 hedge funds that were invested in GCI at the end of the third quarter, declining from 25 at the end of the second quarter. Total hedge fund investment also declined from $494 million to $323 million. Over the same period, 22 hedge funds with $893 million were investing in TWX, moving from 20 hedge funds with $961 million at the end of June.


News Corp has a fair level of risk compared with its peers, but investors are willing to pay a premium for NWS stock, mainly because they are expecting a much higher upside potential from the company than its peers, which can be seen from the expected EPS growth rates. S&P, Thomson Reuters, and Market Edge give somewhat positive recommendations on the stock, but they seem to be a little bit conservative. On the hedge fund side, hedge fund managers were crazy about the stock; both the number of hedge fund and the total hedge fund exposure surged after August 2011. Ultimately, we are bullish about News Corp - we think it's a good investment. In 2012, News Corp's shareholders may benefit from the company's business consolidation in the Middle East media market, and may gain from the company's share repurchase program. We also like newspaper stocks like GCI and the New York Times (NYSE:NYT). These stocks are trading at significant discounts to internet stocks and we expect them to outperform the market over the next couple of years.

Disclosure: I am long NYT.

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