NEW YORK - U.S. stocks, including shares of entertainment conglomerates, finished Tuesday's trading day flattish after initial gains that pushed the Dow Jones Industrial Average index above 13,000 for the first time since May 2008.
Higher oil prices, seen as a risk to prospects for economic recovery, seemed to dampen investor optimism, leaving the Dow up 16.12 points, or 0.12 percent. The broad-based Standard & Poor's 500 index also rose minimally.
Most entertainment giants saw their stocks pull back slightly in Tuesday's session. Viacom declined the most, losing 0.6 percent to $48.38, while Sony's American depositary shares rose 0.3 percent to $20.66.
CBS Corp.'s stock dropped less than 0.2 percent to $29.54, close to its 52-week high of $30.38 set earlier in the month. Similarly, Time Warner's stock closed down 0.3 percent at $37.57, closer to its early February 52-week high of $39.24 than its 52-week low of $27.62. News Corp. fell by the same percentage to close at $19.54, also closer to its year-high of $19.79, which the company set in late January and which it came close to earlier on Tuesday. Walt Disney shares declined 0.4 percent to $41.57. The company's stock has traded between $28.19 and $44.34 over the past year.
Davenport & Co. analyst Michael Morris on Tuesday argued that entertainment stocks have reached the finish line of their post-recession cyclical rebound, but the industry remains attractive.
"Fourth-quarter results to date continue to show a normalization of advertising demand trends," he wrote in a report. "Even as scatter market commentary remains relatively uninspiring, management teams provided upbeat outlooks with many noting accelerating trends in the first quarter…We expect ad sentiment to follow its traditional pattern of lagging macro-economic sentiment by a few months and buyers' behavior should increasingly reflect the more optimistic tone in the market."
Where does this leave stocks of big entertainment players? "Despite [the] recent outperformance for media shares, we still see the group as attractive on a relative basis," Morris said. "Even as revenue growth converges with overall growth in the economy, we see the relatively high incremental margin for media companies (about 85 percent for ad revenue) as an under-appreciated positive…media remains an attractively priced, high operating margin means of investing in a steadily strengthening consumer."
His top picks in the sector are the stocks of News Corp. and AMC Networks, but he also called CBS, Disney and Viacom attractive. "News Corp. remains relatively attractive given its above industry average [operating cash flow] growth rate [and] robust return of capital program," Morris said. "AMC remains a less-well understood company with significant ratings momentum on original content, which we expect will support above-consensus revenue growth in the coming years."