Chances are, Sinclair Broadcast Group (SBGI) is not a company with which you’re familiar. And Sinclair Broadcast stock isn’t likely to be in the average investor’s portfolio. But did you know this mid-cap stock is up more than 350% in the last five years, and looks primed to break even higher after announcing a major buyout of a rival company?
Mid-Cap Stock Merger
Sinclair is one of the largest operators of local TV and news stations in the country, and it’s about to become even bigger. On Monday, the company said it has agreed to buy Tribune Media Company (TRCO) for $3.9 billion. Tribune operates 42 TV stations including the national cable network WGN America plus several local ABC, CBS and Fox affiliates. The Tribune acquisition gives Sinclair control of local TV stations in 72% of the U.S., creating a “leading nationwide platform” in the words of company CEO Chris Ripley.
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Sinclair Broadcast stock was up 3% in early Monday trading on news of the Tribune deal. While SBGI was bouncing off three-month lows, it’s now up 14% year to date and more than 16% in the last year—outpacing the S&P 500 in both cases. Those gains lie in even starker contrast to its main competitors in the local media industry: Nexstar Media Group (NXST) is trading flat for the year, and Gray Television (GTN) is up 6.5% in the last year.
Because they’re all either mid-cap stocks or small-cap stocks, publicly traded local TV station conglomerates are off most investors’ radar. Even SBGI’s biggest gains came mostly in the years that followed the recession, as it made the quantum leap from 1 in early 2009 to 35 by the end of 2013. Since then, it’s been up and down, with 35 holding up as resistance and support coming in the 24-25 range.
In February, however, SBGI stock broke to fresh all-time highs, and kept motoring to 42 once it did (see chart below). Prior to yesterday’s announcement, the stock had retreated to 36 (which would have been a record high three months ago); now it’s back above 38, and trading at a mere 14 times earnings! Suddenly, SBGI looks like a decent value and growth stock.
But my larger point is two-fold:
- It always pays to keep a close eye on merger and acquisition activity. Tribune shareholders, for instance, have gotten a nice 17% in the last week as rumors of Sinclair-Tribune deal started gaining steam. Having a few takeover targets like that in your portfolio can result in a big overnight payday. And it doesn’t hurt to own shares of the acquiring company, which gains an instant revenue influx from a buyout.
- Don’t disregard the little guys! Though obscure and often full of risk, small-cap stocks and mid-cap stocks have a ton of growth potential. Ignoring them means excluding dozens of stocks that have the potential to double or triple (or better!) in the not-too-distant future.
On the latter point, if you’d like help identifying the next big small-cap winners, I recommend subscribing to Tyler Laundon’s Cabot Small-Cap Confidential investment advisory right now. Tyler’s portfolio currently boasts an average return of better than 26%, with all 12 stocks recommended since the beginning of 2016!
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In the meantime, keep a close eye on SBGI. If the Tribune deal pushes the stock to even greater heights, it might be a strong momentum buy.
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