Beat the System: The Trump impeachment inquiry could be good news for one major industry

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The stock to buy when Donald Trump was elected president was The New York Times NYT, -0.29%.

The industry most likely to benefit from the impeachment hearings?

“It’s news, it’s going to spike interest in news platforms,” says Neil Macker, media analyst at research company Morningstar.

The 2016 election and its contentious aftermath has been a boon for some news stocks.

A long and bitter impeachment process on Capitol Hill over the coming months could provide a second ‘Trump bump’ after the 2016 election for all news media.

A long and bitter impeachment process on Capitol Hill could provide a second “Trump bump” for all news media. This won’t be the O.J. Simpson trial, which generated a windfall for cable TV in 1994-5. But it will provide news flow and drama, the staple of the media.

The New York Times stock has outperformed the broad S&P 500 index SPX, +0.05%  by nearly 400% since the day of Donald Trump’s election in 2016, producing returns of nearly 170% against 46% for the broad index.

Fox Corp. now trades on 13 times forecast per-share earnings for the next 12 months, a significant discount to the broader market. The S&P 500 SPX, +0.05% trades on about 17 times forecast per-share earnings.

Speaker of the House of Representatives Nancy Pelosi rolled the dice on impeachment hearings against President Trump last month, after rebuffing calls for years from the liberal wing of the party.

Her decision came in response to the news that President Trump asked the president of Ukraine to investigate the financial affairs of Joe Biden’s son. Trump hit back at Pelosi, accusing her of “treason” and saying she should be impeached.

Some 3.3 million people on Fox News, 2.4 million on MSNBC and 1.5 million on CNN watched Nancy Pelosi’s announcement of impeachment proceedings.

Fox News FOX, +0.24% already won the first round among the major networks, according to Nielsen ratings. Some 3.3 million people watched Pelosi’s announcement on Fox News, compared to 2.4 million on MSNBC and 1.5 million on CNN, the company said. MSNBC has traditionally leaned more to the left, and most media observers argue CNN has increasingly followed suit in recent years.

Fox Corp. was demerged from Twenty-First Century Fox last February after the latter’s acquisition by Disney DIS, +0.46%. Fox Corp. is owned by News Corp. NWSA, -1.22%, the same parent company that owns MarketWatch.

The New York Times, Fox News, CNN and MSNBC did not respond to requests for comment.

Cable news channels across the board saw a surge in viewers after Trump entered the presidential race in 2015 and the higher levels of viewer interest have carried through to some extent since the election.

Data published by the Pew Research Center show that the big three cable companies — CNN, MSNBC and Fox — saw aggregate revenues jump from $3.9 billion in 2015 to $4.5 billion in the election year of 2016, and they were up again to $5.3 billion last year.

According to the Pew Research Center, the big three cable news operations have twice the revenues they did in 2009, but about 20% fewer newsroom employees.

Meanwhile, profits have risen faster than revenues, because broadcasting is an “operationally levered” business — meaning that once you’ve spent the money making the programs, it doesn’t cost you that much extra to broadcast it to another 10 or 100 or 1 million viewers.

According to Pew, the big three cable news operations have twice the revenues they did in 2009, but about 20% fewer newsroom employees. So a surge in viewers and advertising revenue mostly falls straight through to the bottom line.

The profits of the big three cable news channels jumped from $1.9 billion to $2.4 billion from 2015 to 2016 and rose to $2.8 billion last year.

Viewership on all three cable-news networks skews heavily toward older viewers, benefiting from an aging population and retiring baby boomers.

Next year was already shaping up to be a good year for cable news, because of the elections. The question is going to be how much impeachment hearings will add.

Viewership on all three cable-news networks skews heavily toward older viewers, benefiting from an aging population and retiring baby boomers.

Fox’s stock is the most exposed to cable news. CNN is a tiny part of telecoms behemoth AT&T T, -0.45%, whose market value is $275 billion. MSNBC is a small part of cable giant Comcast CMCSA, +0.27%, which has a market value of $210 billion.

By contrast, Fox is valued at just $20 billion, and is much more exposed to the ups and downs of the news operation.

A big bump in cable viewers will benefit all three. But the effects on AT&T and Comcast stocks will be small, and will largely rise or fall on the fortunes of their other activities, Macker said.

There are reasons to think political events tend to energize most the side that feels most embattled. Donald Trump’s shock election victory in 2016 caused a surge in news demand from the left and maybe the center, helping, for example, The New York Times.

Mark Thompson, CEO of The New York Times, told CNBC that there was a rise of approximately 132,000 paid subscriptions in the three weeks following the Nov. 8 election, a tenfold increase over the previous year.

There are reasons to think political events energize the most embattled side. Trump’s victory in 2016 caused a surge in news demand from the left.

At the moment, President Trump isn’t expected to face major nomination battles in the primaries. The big debates will take place among the Democrats. If the next six months are full of impeachment hearings, that could fill provide more momentum for Fox News.

However, the stock market is reasonably good at incorporating known news into stock prices, and if there is going to be a significant Trump bump for Fox stock, it hasn’t shown up yet in the price.

Fox Corp. now trades at $33.6, down from $37 since the demerger in February. Class A shares of Fox are down 15.5% over the past three months, compared to a 1.5% loss for the Dow Jones Industrial Average DJIA, +0.01%  and a 1.5% decline for the S&P 500 Index.

Raymond James Financial, an investment bank and financial-services company, said in a research note last month that the stock market would rally if Trump resigned, a scenario it notes as having a “low probability.”

“After the initial shock, we think the market rallies as Pence is a predictable, traditional, conservative choice,” Raymond James said, citing Vice President Mike Pence.

For his part, Trump tweeted TWTR, +0.48%  that it would be a disaster for the stock market if he was impeached: “Do you think it was luck that got us to the best Stock Market and Economy in our history. It wasn’t,” he wrote.

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