As an investor, you have to give three cheers for indecency. Bubba the Love Sponge, Howard Stern and Janet Jackson appear to have sparked one of those great moments in the market when companies see their shares punished for reasons that have much more to do with the short-term crusades of moral fundamentalists than with the long-term trends of business fundamentals.

Consider Clear Channel Communications ( CCU) and Viacom ( VIA.B), the companies on the bubble now for their supposed evildoing.

Throughout the 1990s, Clear Channel sped across the nation from its base in San Antonio, Texas, like an unstoppable radio beam, electrifying and devouring every small radio and television station, mom-and-pop outdoor billboard operator and radio programming outfit in its path.

From Jan. 1, 1990, to January 2000, Clear Channel shares advanced 8,700%, topping all major rivals -- Omnicom ( OMC), Disney ( VIA.B), Viacom and News Corp. ( NWS), to name a few -- by a country mile.

The turn of the millennium was the only foe that the brilliant business campaigners at Clear Channel could not beat, and was it ever formidable. Starting virtually from the first day of 2000, its shares had fallen almost 75% by the fall of 2002, beset by falling ad rates, sagging programming and a generally foul mood on the part of investors.

But the ad business, bread and butter to the radio and TV trade, has gradually bounced back along with the slow-loping economic recovery, and so have the fortunes of Clear Channel. Until getting the wind knocked out of it by the potty-mouthed antics of popular radio shock jocks in Florida and New York, Clear Channel had matched the rebound of the broad market through the start of this year, gaining about 35% from October 2002 through January 2004.

Thanks, Howard Stern

And now? It's down almost 10% this year, despite the modestly rising trend of the market. That drop is due largely to the negative publicity generated by a couple of out-of-bounds shows that led congressmen, in an election year, to call hearings on the problem of indecency.

Clear Channel fired one of the offenders, Bubba the Love Sponge, from a radio station it owns in Tampa Bay, Fla., and pulled the syndicated show of the other, Howard Stern, from some of its radio stations in New York state, Pennsylvania, California, Florida and Kentucky.

The stock sank to $43 last week, right at its rising 200-day moving average -- a level that has provided reliable support in the past year. If you pick it up here, and it's good to go for the remainder of the year for a run at $55 -- a 27% move -- you can tip your hat in the direction of Stern and Mr. Love Sponge.

You could certainly do a lot worse. Clear Channel's days of 20% annual earnings growth are in the rearview mirror, but this is a company with absolutely dominant market share (it owns 1,200 radio stations in the U.S., or one out of every 10) that provides mass-market advertisers with one-stop access to an audience of 100 million listeners.

Add to that about 750,000 billboards worldwide and a live-entertainment production subsidiary, Clear Channel Entertainment, that puts on more than 25,000 events a year, and you have a company that strides the world stage with undeniable confidence. Although income from the Stern show is nice incremental business, Morgan Stanley estimates that cutting the show from its roster will shave just 0.3% off the company's annual earnings.

Analysts will question whether Clear Channel's estimated growth rate of roughly 9% to 15% is worth a forward price-to-earnings multiple of 25. But at the end of the day, major investors such as Fidelity and TIAA-CREF are willing to hold the shares of a major, well-run global services brand at a price that represents a modest premium to the market -- and they will buy dips.

Patient individual investors who are focused on value may wish to add shares only if they dip to the low $30s or high $20s, but that's a timing call. And you could always start here and add on further declines later if the entire market hits the skids.

Viacom's 'Sins'

Viacom's so-called crime against decency is more direct: It owns MTV, which produced the notorious Super Bowl halftime show featuring Janet Jackson. It also owns CBS, the network on which the show aired, and Infinity Broadcasting, which syndicates the Howard Stern show, not to mention many radio stations that carry the show.

Viacom shares advanced more modestly in the 1990s, rising 410% from their 1997 low to their peak in late 2000, so they had a shorter distance to fall. (From its peak in the bubble years to its worst level of the past three years, the stock fell by half.) Like most stocks, it recovered in the past year and a half, but the indecency furor has sent it right back to its worst levels since late 2002, around $38.

What do you get for your money? Shares of an undervalued company that hauls in more than $25 billion in annual revenue, and $3 billion in free cash flow, from properties that range well beyond radio and network properties to cable franchises Nickelodeon, VH1 and BET, as well as film studio Paramount Pictures and book publisher Simon & Schuster. Advertising brings in about half the sales, so once again a mild global economic recovery, not to mention spendthrift U.S. presidential campaigning, should add substantially to the bottom line this year.

Congress and the Federal Communications Commission have shown that they want to yank Viacom and Clear Channel executives' chains for political gain, and so far the executives have been willing to forgo the defense of free-speech rights to play along.

But the bottom line is that edgy shows like Stern's and MTV's are wildly popular with the all-important 18- to 25-year-old demographic. And if people are tuning in, advertisers will pay up and the cash register will ring for shareholders once the media story wheel moves onto a new topic.

David Mantell, media analyst at Loop Capital Markets in Chicago, said indecency is absolutely the short-term culprit in the recent stock price hits at both companies -- and caused him to raise his rating of Viacom. "I see good potential for this stock," he said. "Viacom's TV assets are doing great, driven by strong ratings for its CSI series and spinoffs; filmed entertainment is doing fine, driven by strong DVD sales; the cable networks' revenues were up 24% year over year due to healthy ad-rate increases at MTV and BET, and we think Paramount has a very strong slate of movies scheduled for release at the end of 2004."

A catalyst that could get Viacom shares moving again is the expected sale of its stake in troubled movie-rental chain Blockbuster ( BBI). Mantell, who has a good track record with the stock, advises investors to "take advantage of the weakness" here at $38 and target $46, which would be a 21% move. That would be very decent indeed.


Decent Returns From Indecency?
If making money is wrong, these stocks may not be right.
Company Market Cap March 2 Close % Change YTD My Target
Clear Channel (CCU:NYSE) $26 billion $43.61 -6.9% $55.00
Viacom (VIA.B:NYSE) 68 billion 39.53 -11.2 46.00
Source: MSN Money

Jon D. Markman is publisher of StockTactics Advisor, an independent weekly investment newsletter, as well as senior strategist and portfolio manager at Pinnacle Investment Advisors. While he cannot provide personalized investment advice or recommendations, he welcomes column critiques and comments at jdm68@lycos.com. At the time of publication, Markman did not have positions in any securities mentioned in this column.

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