Plays on Political Ad Spending

07/08/2016 9:00 am EST

Focus: ETFs

Stephen Quickel

Editor, US Investment Report

I've always tried to keep politics out of my stock picking. They mix about as well as oil and water, cautions growth stock expert Stephen Quickel, editor of US Investment Report.

But in this crazy election year, which figures to set records for nastiness and obfuscation, the most obvious revenue and earnings gainers will be the media companies carrying the record volumes of campaign advertising that's been forecasted.

And while selecting the likeliest stock market winners from among them is fraught with imponderables, the process has nothing to do with factoring in political ideologies.

Clinton and Trump, and the multitude of nationwide contenders for congressional and state house jobs, will be shelling out jillions for ads, regardless of political leanings.

If you favor large cap stocks, go for Comcast (CMCSA), which owns NBC Universal and Telemundo, or Disney (DIS) with its ABC division. Both are rated Buys or Strong Buys by a majority of the analysts tracking them.

They are growing earnings a bit faster than the 9% rate of the S&P 500 universe. And they trade at reasonable P/E and PEG ratios -- though Comcast has greater market momentum just now. Disney is vastly underrated, however. 

The purer political advertising plays, in terms of percentage of revenues and earnings, are small- and mid-cap cap stocks such as Sinclair Broadcasting (SBGI), E.W. Scripps (SSP), Gray Television (GTN) and Nexstar Broadcasting (NXST).

Analysts most heavily favor Sinclair, which may have the greatest political ad exposure, and Nexstar, which more than doubled its political ad potential acquiring Media General for $4.6 billion.

Six of 7 analysts call SBGI a Buy to Strong Buy, 4 of 7 gives those ratings to NXST. Scripps and Grey are said to have strong positions in swing states and local areas where heated campaigns are shaping up.

All are trading at lows just now from the Brexit fallout, but my favorites -- Sinclair and Nexstar -- are both expected to report 60% earnings bulges in coming 12 months--presumably due to political ads.

Both trade at very moderate single-digit P/E multiples. Sinclair pays a 2.5% dividend yield, to boot.

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By Stephen Quickel, Editor of US Investment Report

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