The One Sector Getting a Major Boost from the Election

Presidential elections are big business. They also make for good investment opportunities.

It’s not even August, and a record amount of campaign money has already been spent on this year’s presidential election. Thanks to Super PACs, which now allow for unlimited spending, election spending will reach a record $9.8 billion this year, research firm Borrell Associates estimates. That’s 40% more than the $7 billion spent on the 2008 election.

And where do most of those election dollars go? Televised campaign ads.

Watch TV for more than 15 minutes these days and you’re sure to see at least one commercial either praising or slamming the two candidates – typically the latter. The smear campaigns are in full swing, and both Mitt Romney and Barack Obama have taken the gloves off.

Each has launched an all-out assault on the other. And neither candidate is sparing any expense.

That’s good news for anyone who owns media stock. Big media companies are the ones that profit most from all the time and money the candidates spend slamming their opponent.

Perhaps that’s why shares of some of the largest publicly traded media conglomerates in the world have been soaring this year.

Shares of Comcast (Nasdaq: CMCSA), CBS (NYSE: CBS), Disney (NYSE: DIS) and News Corp. (Nasdaq: NWS) are up an average of 30.7% in 2012. Those companies own the four major television networks (Comcast owns NBC, Disney owns ABC, News Corp. owns FOX), plus myriad other cable channels. They’re the ones pocketing most of the campaign advertising dollars.

It’s no coincidence that all four of them are trading at or near five-year highs right now.

Of course, campaigns don’t last forever (though they may seem like it). In a few months we’ll elect (or re-elect) a president and suddenly all those advertising dollars will disappear. TV networks flush with cash now will suddenly be scrambling to fill the void.

History tells us that media stocks tend to rise through the end of election years before crashing back to earth early the following year.

In 2004, Disney shares climbed nearly 30% in the second half of the year, then promptly lost most of those gains in 2005. CBS shares gained around 21% from July 2004 through February 2005, only to fall to a four-year low by late 2005.

So don’t expect these big-media stocks to keep rising – at least not much past November.

While their price-to-earnings ratios aren’t too out of control yet, all of them are in the high teens and low-20s. If the stocks continue to grow and earnings take an expected post-election dip, the shares may become grossly overbought.

But the election isn’t here yet. The mudslinging is just heating up. There are sure to be plenty more advertising dollars spent from now until November.

So while big-media stocks are almost universally trading near 52-week highs at the moment, there’s still more room to grow. None of the four companies has even reported second-quarter earnings yet. Those should begin to reflect the degree to which each is profiting from this election.

Media stocks will have their comeuppance after what has been a record run. But not yet.

It’s not too late to profit from this year’s presidential election – for the networks or investors.

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