Legendary fund manager Mario Gabelli is very bullish on four media stocks, saying they will double in the next five years. Is he right? And, if so, which is the best pick?
Legendary fund manager Mario Gabelli is really bullish on one particular sector these days: media.
The founder and CEO of $43.5 billion GAMCO Investors, Inc. is a big fan of Time Warner, News Corp, Viacom, and Discovery Communications. And, he thinks the next few years will be great for investors in those companies.
Appearing on CNBC's Squawk Box on Thursday, Gabelli said:
"Each of these stocks, because of the rising middle class around the world and the notion of having that mobility in their hand and want content – you'll see these stocks double over the next five years."
(Watch the interview: Gabelli: Stocks that will double in 5 years)
Seem far-fetched? Not exactly.
Over the past five years three out of these four stocks more than doubled, with Viacom now six times what it was in 2009. The PowerShares Dynamic Media Portfolio (the PBS), which tracks the Dynamic Media Intellidex, is up 345%.
|Company||Ticker||Market cap |
|YTD returns||5-Year returns||Since 2007 |
|S&P 500 Index||N/A||26%||124%||16%|
*News Corp in its current form began trading in July 2013.
But, that's not the entire story. Five years ago, the market hit bottom as a result of the financial crisis. Go back a little over six years – to the market's October 11, 2007 peak – and you'll see more modest returns. For example, Discovery's 193% returns since the market's top comes out to roughly 19% on an annualized basis. That's much less than the 46% annualized return for those who invested in it exactly five years ago.
(Check out: CNBC Media coverage)
With all that said, is Mario Gabelli right? If so, which one of his picks is the best?
From the technicals perspective, Katie Stockton, Chief Technical Strategist at BITG, is bullish on media stocks in general and with Time Warner in particular.
"There's really strong momentum behind media stocks in general," says Stockton. You can see that in the ETF PBS, but also, of course, in Time Warner. This is the kind of stock I think is a good core holding in a long book."
Based on the fundamentals, Chad Morganlander, portfolio manager at Stifel Nicolaus, believes Time Warner is the strongest of Gabelli's four picks. [Disclosure: Stifel makes a market and has a "buy" recommendation on Time Warner].
"When you look on the valuation perspective, you're looking at about 15 times forward-looking multiple," says Morganlander referring to the stock's price-to-earnings ratio. "So, even though this stock has this tremendous run, you can still see that earnings are supportive of that."
To see the rest of what Morganlander on the fundamentals and Stockton on the technicals have to say about Gabelli's thesis and why they like Time Warner, watch the video above.
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