When it comes to the media, few have the savvy and experience of Rupert Murdoch, CEO and founder of News Corp. (NYSE:NWS). However, this might mean nothing when dealing with the rapidly unfolding News of the World phone-hacking scandal. About $6 billion in shareholder wealth has vanished in about two weeks.
But could there be an opportunity to buy a global media empire at a big discount? This might indeed be the case – though it’s not easy to pull the trigger on such a trade.
However, some of the world’s great investors have made fortunes when companies have come under tremendous pressure. Just look at Berkshire-Hathaway’s (NYSE:BRK.A) Warren Buffett. At the depths of the financial crisis, he bought stock in companies like Goldman Sachs (NYSE:GS) and GE (NYSE:GE). Now, those purchases look brilliant and have resulted in substantial returns.
It’s true News Corp. is different, as there are concerns of criminal violations. A top executive, Rebekah Brooks, resigned and later was arrested.
Who might be next? Will there be an arrest of Murdoch’s son, James? What will come of an FBI investigation?
No doubt, the uncertainty is terrible for this stock. But again, this does not necessarily mean it’s a bad investment. A prime example is BP (NYSE:BP). Even though it polluted the Gulf of Mexico – and had to pay enormous fines and clean-up costs – the stock price has rebounded by about 66% since its low after the Deepwater Horizon incident.
Ironically, the share price of News Corp. might actually benefit if there are criminal violations. Why? If anything, this could put incredible pressure for Rupert to step aside. And, in light of his recent decisions, this certainly would be a good thing. After all, he overpaid for Dow Jones and destroyed MySpace. He also seems to have some quaint attraction to the newspaper business, even though it is dying and dragging News Corp. down with it.
The company needs to have professional managers who understand how to grow shareholder value. No doubt, News Corp. has a strong global platform, with lucrative cable assets like Fox News and local sports networks. There also are its film and television studios, which have produced mega-hits like the “American Idol” and “Glee.”
But according to a variety of top analysts – such as from Barclays PLC, Gabelli & Co. and Yacktman Asset Management – News Corp. is selling for as much as a 50% discount to its asset value. It’s known as the “Murdoch discount.”
But despite all this, it still is not necessarily a good idea to rush into the stock. When looking back at the BP disaster, it took several months for the stock the find a support level. News Corp. likely will follow the same path.
But NWS definitely is a stock to keep an eye on. It could turn into a great trade.
Tom Taulli’s latest book is “All About Short Selling” and he has an upcoming book called “All About Commodities.” You can find him at Twitter account @ttaulli. He does not own a position in any of the stocks named here.
