Questions to Ask About the Media Stocks

It's time for an update on the Media Madness portfolio. With third-quarter earnings looming, I thought a review of key questions surrounding each company would be a good exercise.

While some of the questions are tough or critical, I want to reiterate that I am bullish on each stock in the portfolio. That said, should earnings or guidance disappoint or answers to critical questions prove unsatisfactory, I may change my opinion.

Keep in mind that the Media Madness portfolio, like the media stock portfolios I manage for myself and clients, is long-term in nature. I typically own stocks for at least one year and often have multiyear holding periods. As a result, I treat quarterly earnings and daily stock price movements as noise surrounding my longer-term thesis.

Here is a look at the Media Madness portfolio with prices as of last night's close:

Performance of the portfolio has been mixed since the portfolio's early June launch. The big losses in Citadel (CDL - commentary - Cramer's Take) and ValueVision (VVTV - commentary - Cramer's Take) drag down the overall results, while Apple (AAPL - commentary - Cramer's Take), Central European Media Enterprises (CETV - commentary - Cramer's Take) and Rogers (RCI - commentary - Cramer's Take) have produced nice gains. Regal Entertainment (RGC - commentary - Cramer's Take) has also performed well after adding in two 30-cent quarterly dividends that are not reflected in the table.

Key Questions Heading Into Earnings Season

Apple: With the stock surging to new highs, the bar has been set much higher for the quarter. Leaving aside the "beat and raise" mentality surrounding the shares, I'll be focused on overall margins and average selling prices for iPods. With prices for NAND flash memory up, the massive beats in the last couple of quarters due to margin expansion are unlikely to repeat.

This quarter could represent a normalized quarter, so I'd like to know whether margin levels are sustainable for fiscal 2008. One factor that will influence the answer is average selling prices on iPods. The refresh of the iPod line announced earlier this month could boost ASPs, which have trended sharply lower over the past year as the Shuffle and Nano have gained market share relative to hard-drive, high-capacity iPods. Will the Touch and 160GB Classic shift ASPs upward?

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At time of publication, Birenberg was long Apple, Central European Media Enterprises, Comcast, Disney, Grupo Televisa, NII Holdings, News Corp., Regal Entertainment, Rogers Communication and ValueVision Media as personal and client holdings, although holdings can change at any time.

Steven Birenberg is president and chief investment officer of Northlake Capital Management, LLC. Northlake specializes in managing equity portfolios using a combination of exchange-traded funds and special situation stocks. Birenberg appreciates your feedback; click here to send him an email.