LOS ANGELES, Nov 14 (Reuters) - Media shares, already battered by months of shrinking consumer confidence, are at multi-year lows and prime for an investor buying spree, but analysts disagree on whether the bottom is near.
Investors are keeping eyes on such indicators as consumer sentiment, theme park and movie attendance, and hedge fund investors to try to catch an updraft in such big media names as Viacom Inc VIAb.N, Time Warner Inc TWX.N, News Corp NWSa.N, CBS Corp (CBS.N) and Walt Disney Co (DIS.N).
Standard & Poor's Movie and Entertainment sub-industry index has dropped 42 percent so far this year, compared with a 45 percent fall for the Dow Jones industrial average .DJI.
Analysts say media shares are the first to be shed from portfolios in a downturn, but could show the first signs that consumers and investors have shed their bunker mentality.
So how will analysts know when media shares have reached bottom and are on their way back up?
Standard & Poor’s Equity analyst Tuna Amobi said media investors have a long wait ahead for a rally, based on data from S&P’s economic team that shows declines in consumer spending through at least mid-2009.
Amobi said he will watch consumer discretionary income, which is “highly correlated” to gross domestic product growth.
“They are looking at consumer spending to be declining through this year and through the second half of next year and maybe recovering a bit,” Amobi said.
“The good thing is that these companies lead the rally.”
Wunderlich Securities analyst Martin Pyykkonen said he will look for signs of a recovery in consumer-facing businesses like Disney’s theme parks and consumer products division.
“If you don’t see (a recovery) there it’s kind of hard to see it in the numbers of those companies,” he said.
Disney Consumer Products reported a 41 percent rise in revenue in its latest quarter, but Pyykkonen said he was sticking with his recent downgrade of Disney’s stock to “neutral.”
“This is not a ‘Disney is going down the tubes’ issue. It’s just with an uncertain outlook,” he said. “I just don’t want to be out there (saying), ‘Go ahead and blindly buy this ... because it might take you two years to make it back if things stay soft for some unknown time period.”
Larry Haverty, manager of the Gabelli Global Multimedia Trust, said the bottom looks imminent, with hedge funds poised to do major selling on Friday as investors face a Nov. 15 deadline to pull their money out.
A recent bounce in shares of Goldman Sachs, which hit a multi-year low on Wednesday, was also a good sign, Haverty said, because “you don’t have a bull market starting with without relevant leadership in the financial sector.”
“Your (stock) valuations are there and your market valuations are there, so effectively you are watching capitulation. If you try for any more it’ll be like the Holy Grail — you’ll never find it,” said Haverty.
“I think the stocks are very, very cheap,” Haverty said. “These are very very significant buying opportunities.”
“It’s kind of like a football game,” Haverty said of a market recovery. “Once it gets going, people pile on ... prices are so thin right now it won’t take long.”
“At the end of the day the consumer is not going to stay in the house,” he said. “They will start looking for small things to be entertained, which is why movies do well in times like these.” (Reporting by Gina Keating, editing by Richard Chang)