July is creeping toward an end and I'm starting to see the first back-to-school ads pop up on television. Before you know it, it will be September and then the beginning of fall.
Before moving to Florida, I always had mixed feeling about fall. While you have the start of football and pennant-race baseball along with the release of the fall/winter book catalog by most fiction publishers, it also meant that winter was on its way. Since relocating, weather changes just mean I might have to wear shoes at some point in the next six months, so I look forward to September more than ever.
This year, however, I view autumn's approach with a twinge of trepidation. In addition to baseball playoffs and football, this year we will see another season begin. Election season will soon be upon us and the advertising barrage will begin anew. There will be so many political ads here in Florida that folks peddling erectile dysfunction pills and adult diapers are going to have a hard time getting a sales pitch in edgewise.
It will be the same for much of the country as the primary elections, especially on the GOP side, are going to get ugly quick. Without straying too far into politics, I have to say that I fully expect the Democratic primary to get just as ugly before all is said and done, too.
There is a huge profit opportunity in this barrage of ads. Local newspapers and radio stations will see a significant pick-up in business as candidates attack each other and single-issue PACs push their various initiatives. There will be more chatter about this as we get closer to year-end but the time to consider buying the local TV and radio stocks is now while everyone is focusing on tech earnings and Chinese growth rates.
The Hispanic vote is going to be very important this year and Spanish-language stations and papers should reap a bonanza. Spanish Broadcasting System (SBSA) owns 20 radio stations located in the top U.S. Hispanic markets of New York City, Los Angeles, Miami, Chicago, San Francisco and Puerto Rico. The company also owns MegaTV, a television operation with over-the-air, cable and satellite distribution and affiliates in the U.S. and Puerto Rico, in addition to websites and apps for Spanish-language news, entertainment and music. The stock is reasonably priced right now, with an enterprise value/EBIT ratio of 6, but sales and earnings should see an enormous boost next year.
I am a big fan of A.H. Belo (AHC) even without the increase in ad revenues it should see from the election spending. The company owns The Dallas Morning News and The Denton Record-Chronicle newspapers, and operates related websites. It also publishes Al Dia, a Spanish-language newspaper that should see super-charged election advertising spending starting in the fall and continuing through next year.
A.H. Belo has diversified away from being just a newspaper company, adding commercial printing, distribution, direct mail and digital marketing, but the story in 2016 is going to be the core newspaper business driving solid revenue and profit growth. The stock has been on my longshot list for some time now and I think it is a great buy at the recent price.
Salem Media (SALM) owns 110 radio stations around the country that broadcast what they call Christian and conservative programming. I suspect that this is going to be a real popular company with the growing number of GOP presidential candidates. Even after the primaries and party convention finally settle on a candidate there will be heavy spending to keep the base energized heading to the polls.
Salem also owns several leading Christian websites, including Christianity.com, BibleStudyTools.com, GodTube.com, GodVine.com, WorshipHouseMedia.com and OnePlace.com, and conservative sites including Townhall.com, HotAir.com, Twitchy.com, Human Events.com and Red State.com, which could see advertising sales pick up from election spending. And you get paid to wait for the election payoff, as the shares yield over 4% right now.
Beasley Broadcasting Group (BBGI), the oldest publicly traded radio broadcast company, currently owns 53 stations located in 12 large- and mid-size markets in the U.S. More importantly, 34 of those stations are in Florida in North Carolina, which will be hotly contested in both the primary and general elections. The stock is selling for less than 7x earnings and an election-driven earnings explosion could send it sharply higher over the next two years. The shares also offer a decent yield, at over 4%.
With the large number of primary candidates and a close split between the parties, advertising spending is going to be enormous throughout the election cycle. Stocks of the owners of local newspaper and radio companies could help dampen the annoyance of the advertising barrage we will be subjected to every time we turn on radio, or pick up the newspaper.