2022

November 2022

Buy 170 shares of Fox Corporation (FOX) at ~$27-28

My first stock pick for this investment journal is Fox Corporation (FOX), which is a news, sports, and entertainment company. They own the Fox broadcast network, Fox Sports, Fox News, Fox Business, and Tubi. Fox has an interesting history. Its predecessor was 21st Century Fox, which was a major media empire built by Rupert Murdoch. Before 21st Century Fox, it was under another company run by Murdoch called News Corporation. Murdoch built News Corp into a major media conglomerate with brands such as the Fox network, Fox News, 20th Century Fox, and the Wall Street Journal.

However, News Corporation was split into two separate companies in 2013 due to phone hacking scandals that occurred in British newspapers owned by News Corp. The old News Corp retained the print businesses such as the Wall Street Journal and HarperCollins while splitting off Fox into its own company. Recently, Fox and News Corp have been in the news as a special committee has been created at the request of Murdoch to investigate combining the two companies again. The market reaction to this has been negative since there’s not a clear argument as to why the companies should recombine. I think the Dow Jones component of News Corp is interesting since it contains the Wall Street Journal, Barron’s, and MarketWatch, which could integrate nicely with Fox Business.

Fox is an interesting play in the new media environment that we find ourselves in with companies like Netflix and Disney dominating the entertainment news. It’s a pure play on news and live sports, which Murdoch is betting on to stem the bleeding losses from cord cutting. Fox has the sports rights to MLB, NFL, and soccer. I don’t see sports becoming less popular over the next decade and the portfolio that Fox has with these sports rights gives it leverage with viewers and content distribution providers. It’s also one of the few media companies that is staying out of the streaming wars. While companies like Netflix and Paramount spend billions of dollars on creating new content with a low ROI to be seen, Fox is content on avoiding this drunken spending by focusing on its ad supported streaming service, Tubi. Tubi has done surprisingly well and on the last earnings call, Fox executives commented that Tubi has given Fox advertising strength as it is profitable and growing.

Fox News is the crown jewel of Fox. It generates significant cash flow and has been the #1 cable news network for quite some time. While it faces some litigation risk due to the Dominion voting machines lawsuit, I think Fox will ultimately prevail or if it’s forced to pay up, the fine won’t be as significant as the market fears. Fox Business has been doing well, beating CNBC in the ratings for the last several months and continues to grow as well.

The company has a good balance sheet. About $5 billion in cash and a little over $7 billion in debt. If you compare it to other media companies, many of its competitors like Disney and Paramount have weaker balance sheets with much more debt. Fox has also been benefiting from increased advertising revenue due to the 2022 midterm elections and I expect to see the results of this reflected in Q1 2023. Earnings should continue to grow and while the risk of a recession looms, I think Fox is well positioned in this environment.

Unfortunately, Fox hasn’t had a great year so far. Shares are down about 20% and the potential News Corp-Fox merger has put an overhang on the stock. However, I expect to hear more news about this potential merger in early 2023 and think this is a great time to start accumulating shares in Fox. I also wouldn’t be surprised to see activist investors get involved in this stock as it seems many outside investors are skeptical of the News Corp-Fox merger. One note – make sure to buy the class B shares (FOX) and not the class A shares (FOXA). The class B shares are cheaper and have voting rights unlike the class A shares.