BOSTON (TheStreet) -- Content will soon be king again, and Disney (DIS) - Get Report, Time Warner (TWX) and Google (GOOG) - Get Report will benefit most from the shift, mutual-fund manager Jerry Jordan says.
As a professional investor seeking outsized gains, Jordan often takes a contrarian approach. For instance, he began buying steel companies in 2008 as the world economy began to falter. That bet paid off, thanks to a rebound in demand in China. Now, Jordan has been purchasing out-of-favor media companies.
With investors focusing on distributors such as Netflix, whose shares have tripled this year, "content has gotten short shrift over the last decade, and that's about to change," Jordan says.
Jordan manages the
Jordan Opportunity Fund
, which has a five-star rating from Morningstar due, in part, to high returns over five years. The fund has increased 11% this year, while the
S&P 500 Index
has eked out a 1.5% gain.
Jordan is looking to continue his winning roll with media stocks because he forecasts that pricing is set to explode. He pins some of that on pay walls that some content providers are putting up on certain properties. At the same time, he also sees media companies as having more leverage on content distributors, such as Netflix, as technology advances.
"You're not buying Netflix for its content," Jordan says. "They don't have any content. It's merely a distribution network. We're going to see some of the market share shift from the distribution entities back to the content folks over the next decade."
Content companies have been out of favor for a decade. Jordan says media stocks were too expensive in 1998 and 1999, but those same names have become cheap on a valuation basis during the market low in March 2009.
Exchange traded funds and indices tracking media stocks show how under-loved many companies have been. The
PowerShares Dynamic Media
ETF is down nearly 11% since its July 2005 inception, while the Dow Jones U.S. Media Index has fallen more than 14% over 10 years. The PowerShares ETF has advanced 13% this year, and the Dow Jones index has jumped 20%. Jordan says they may extend those gains.
Media companies are "still too cheap," Jordan says.
Jordan is placing a big bet on media stocks, given that he tends to hold only 25 to 50 companies in his portfolios. His firm identifies four to six investment themes that pay off within one to three years.
That strategy generates high turnover. Jordan completely changes his holdings about twice a year, and new-company turnover has averaged about 25% this year. As a result, performance tends to be "lumpy," Jordan says. The Jordan Opportunity Fund has outpaced the S&P 500 over the past year and five years, although it trails over three.
The media industry is crowded, which is why Jordan offers four stock picks in his portfolio that he expects will outperform.
: Disney is the entertainment giant best known for Mickey Mouse. The company operates media networks, such as ABC and ESPN, studio films, consumer products, and theme parks and resorts.
Forward P/E Ratio
: "Disney is a little of everything. The theme parks are coming back. The weak dollar helps that from the standpoint of the rest of the world visiting. The television networks are ripping. Movies are doing well. The cruise business is a fantastic business and it's getting better. There are a bunch of different levers that they have got that are all cyclically rolled up while you have a big secular opportunity in improved pricing."
: Time Warner is a media and entertainment company, operating cable television networks, film studios and publishing units. Subsidiaries include Time Magazine, HBO, Warner Bros., CNN, Turner Broadcasting and New Line Cinema.
Forward P/E Ratio
: "There's nothing specific here. They key is that I'm focused predominantly on visual media. The opportunity for Time Warner isn't the magazines. The opportunity is for the video-oriented properties to make a big run where they can raise prices and they can tighten up their agreements with
and Netflix so they garner more and more of the revenue each year.
"Time Warner right now is 13 times earnings. If they can grow their earnings at 13% or 14%, and then the multiple can go up 50%, I think I've got a stock that can be a double in three years in an S&P that I doubt will be at 2200 in three years."
: Google is the Internet search giant that generates revenue primarily through online advertising. The company counts video-sharing Web site YouTube as a subsidiary. Google also develops the Android operating system for mobile phones and also launched the Google TV set-top box in October.
Forward P/E Ratio
: "I put this in the media space. It's just a fantastic growth company. Look at Google TV. That's going to have huge negative pricing effects on Apple and Netflix. Now, Apple doesn't make an enormous amount of money off iTunes. But it'll have an effect on the margin. It allows them to apply on an enormous amount of pressure on the people who are distributing the product."
: Sohu.com is the Chinese Internet company operating a search engine, online advertising and multiplayer gaming.
Forward P/E Ratio
: "This is essentially a media company in China. We owned a lot of Chinese stocks over the past 12 months, and we've slowly whittled them back over time. But Sohu has a property called SoGou, which is essentially the Twitter of China."
-- Written by Robert Holmes in Boston
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