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Stock Strategist

Why the Media Sector Is Far from Dead

Media stocks have performed terribly, but we think they will rebound.

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At Morningstar, we spend a lot of time with great investors. Our favorites tend to buy and hold great companies at bargain prices. We realize, however, that there are lots of ways to make money in the stock market, including by buying stocks solely because they have fallen out of favor. The theory behind this approach is that stocks always revert to some mean valuation level, and stocks that have experienced sustained price and valuation declines will eventually enjoy gains that will move their valuation ratios up to the mean.

If this style of investing makes sense to you, then you might want to spend some time evaluating stocks in the media sector. Over the past five years, Morningstar's index of media stocks has dropped more than any of our 12 sector indexes: negative 3.49% annually (including dividends), compared with a 4.33% total return for the S&P 500. Almost half of the 83 stocks in the index with five-year records had negative annual total returns during this period. Subtracting dividends, this percentage decline would be even worse.

Jonathan Schrader does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.