The Hispanic Media Boom
Nov 2nd, 2004 | By James Boric | Category: International, Investing Strategies, Penny stocksJames Boric, sore from playing basketball last night, reports from midtown Baltimore…
*** The big question on everyone’s mind today is: Bush or Kerry…who will win?
While big-time media pundits (who seem to get paid by the word) blather on about predicting the outcome, your Penny Sleuth editor makes no pretense: I’m a mere mortal like the rest of you – with no sixth sense to foresee into the future. There may be hanging chads in Ohio, bloated registration roles in Miami or crashing voting terminals in California. Or it could turn out to be another three-week fiasco like in 2000, when the Supremes helped decide the outcome. We’ll have to sit tight and find out. But regardless of who wins, and regardless of when we find out about the results, two things are certain. The sun will shine tomorrow (unless it’s cloudy in your neck of the woods). And small-cap stocks will continue their dominance over their large-cap brethren.
This year alone, the iShares SmallCap S&P 600 (a major small-cap exchange-traded fund that tracks the S&P 600) is up 11.2%. Meanwhile, the mighty S&P 500 (the best large-cap proxy on the market) is only up 1.6% in the same time. In other words, small-cap stocks have outperformed their larger counterparts sevenfold since Jan. 1, 2004. And folks, small-cap stocks haven’t just been “lucky” this year. They have been kicking the proverbial crap out of the large caps since 2000. And barring a meltdown in the next two months, this will mark the fifth-straight year that small-cap stocks win the battle of bigger returns.
And I’m not just cherry-picking stats to throw at you. Small-cap stocks, small-cap indexes and even small-cap mutual funds have simply dominated for the past half a decade.
*** “Small-cap value, blend and growth funds have returned an average of 15.3%, 12.7% and 3.3% annually over the past five years. That puts them well ahead of their large-cap peers. In fact, the small-cap funds have beaten their rivals by 11.8, 13.6 and 8.6 percentage points respectively over that span,” reports Gregg Greenberg for TheStreet.com in an article published yesterday.
In his piece titled “Who the Small-Cap Fits,” Gregg goes on to explain that one of the reasons small-cap companies typically outperform larger corporations is simple…
“Small companies can hire and fire faster and can ramp up production faster to meet increased demand.”
In other words, small-cap companies are far more nimble that behemoths like IBM, GE and Texas Instruments. They can react quickly to changes in the marketplace. They can add or delete a key management position to make an immediate impact on the bottom line. And they tend to be more in touch with what the consumer both wants and needs. The result…
Small-cap companies have higher growth rates than large-cap corporations. And their stock prices rise faster, too At least that’s the way it’s been for the last five years.
Still, most investors don’t seem to get it or care. As Brent Brodeski, a financial adviser for Savant Capital Management, said, “Usually people have little to no small-cap exposure…People are more familiar with large companies because they read about them in the papers, but that does not necessarily make them better.”
We here at Penny Sleuth couldn’t agree more. People fear what they don’t know. And no one knows about the small-cap stock market. Hopefully, Penny Sleuth can save a few people soon! We’ll keep on preaching.
*** Finally, I want to point out that it isn’t just U.S.-based small-cap companies that return investors fat profits. Last year, I was hot on two Chinese small-cap stocks that rose double and triple digits in just a few months. In fact, one of the companies, China Yucahi, rose 146% in eight weeks…and made it to No. 1 on Investor’s Business Daily’s top 100 stock list.
Right now, I am bullish on small-cap companies from India. After visiting Mumbai this past June, I saw firsthand how much opportunity there is for telecom, auto companies, outsourcers and food producers. That’s why I recommended two Indian small-cap stocks in Penny Stock Fortunes this past summer. If India becomes one of the largest economies in the world, these two stocks should do very well. And all indications point to India taking off…
Goldman Sachs predicts India will become the third-largest economy in the world by 2050 – behind only the economies of the United States and China. Last year, foreign fund managers dumped $7 billion into Indian stocks – the most ever. And Moody’s even upgraded India’s foreign currency to investment grade thanks to its “vibrant economic growth.”
Only time will tell if India lives up to my expectations. If it does, I expect our small-cap stocks to be huge winners – possibly the kind that stories are written about in years to come. We’ll wait and see.
By the way, if you are not already a Penny Stock Fortunes reader, check out my report on India:
http://www.agora-inc.com/reports/PNY/indiaB01/
But of course, India isn’t the only emerging market worth looking at right now.
Our resident Penny Sleuth, Irwin Greenstein, has uncovered what could be the next great investment opportunity for small-cap investors. He’s discovered a market that is likely to double by 2050. And although you may not read a lot about it in the mainstream press, it is already making a huge mark right here in the United States.
It’s all yours, Irwin. And thanks again for the steak dinner last week. I love when you lose a bet!
The Hispanic Media Boom
In 1974, the American novelist James Jones returned to the United States after 17 years as an expatriate in Paris. He already had written the World War II classics From Here to Eternity, Some Came Running and The Thin Red Line – all of them getting the big-screen treatment. But instead of heading for New York, his plane set down in Miami – far from the literary spotlight. He just wanted to hang out in the tropical climate and teach writing at a small university. And that’s where we met.
At the time, who would’ve known that my connection with Jones would lead me to discover one of the hottest, undiscovered small-cap sectors? It would be just the kind of incredible opportunity that Wall Street legend John Templeton might take advantage of –as he did with emerging markets in Argentina, Peru and Mexico.
But back to James Jones…
Imagine that you’re 25, struggling to write the great American novel – and you get to spend a full year under the wing of your hero. After all, Jones had attained the critical and financial success that is the stuff of dreams. His novels had been turned into Oscar-winning movies staring Burt Lancaster, Frank Sinatra and Montgomery Clift. Like many self-made men, Jones worked extremely hard…and beat the odds. I was hoping that maybe some of his hard-won success would rub off on me.
At the time, Jones was finishing Whistle, the final installment of his war trilogy that included From Here to Eternity and The Thin Red Line. I remember him sitting behind the standard-issue classroom desk reading us the final chapter he had finished that morning – and then he cried. I mean, this guy was a Golden Gloves welterweight, won the Bronze Star and Purple Heart at Guadalcanal (6,000 American casualties) and survived Japan’s sneak attack on Pearl Harbor. And he cried. How could I ever let him down?
That’s when I took to driving to Miami’s Little Havana. At the time, I owned a 1959 Austin Healy 100-6 sports car. It had no top or windows – exposing me to the full experience of Calle Ocho – the main drag in Little Havana. I would stop at the walk-up window and order a double cafe Cubano – a caffine shot so potent that by comparison a heart defilibrator packs the charge of a AAA battery.
Standing there in the Miami heat, sipping the sweet espresso sludge, I took in the vibrance of the street…the sounds of music, TV shows and commercials of Spanish broadcasters. Inspired by the life around me and revved up on a drink that literally made my teeth chatter, I raced back to my tiny apartment and sat before the typewriter – pounding out the best I could for James Jones.
Since those glorious days in Miami, the city’s Hispanic population has soared 204% – to the extent that the Greater Miami-Dade population has crossed the 1-million mark and comprises 53% of the population.
And Miami isn’t alone when it comes to Hispanic growth. As of July 1, 2003, Hispanics ranked as the largest U.S. minority, the U.S. Census Bureau reported. Hispanics made up 13.7% of the population – a number expected to hit an amazing 24% by 2050.
Is it any wonder, then, that the biggest corporations in America such as PepsiCo, Ford and Miller Brewing are blitzing Hispanics with ethnic advertising…fueling one of the biggest small-cap segments that has been largely ignored by Wall Street?
Driven by the expanding population and big-time advertising bucks, American-based Hispanic media companies have become the hot ticket for savvy small-cap investors – with no limit to the growth potential of the people who listen to Hispanic music, watch Hispanic TV and read Spanish-language publications.
So unless you’re Hispanic or in advertising, you’ll be hard-pressed to know about this incredibly profitable business. And that’s where the experts come in.
Gabelli & Company, an institutional broker/dealer, reports that Hispanic TV advertising has grown 74% over the past five years. But the run-up isn’t confined to TV. Between 1999 and 2003, magazine advertising has risen 58%, while local TV ad revenues have increased 43%. And it gets better…
Gabelli foresees overall ad expenditures for U.S. Hispanic outlets to hit $3 billion in 2004 – more than doubling the $1.4 billion spent in 1997. For publicly traded Hispanic media companies, Gabelli anticipates “extremely high valuations.”
For example…
Entravision has seen astonishing stock performance over the past 52 weeks…shooting from $6.85 to $11.67 – a remarkable 70.4% improvement. The Santa Monica, Calif., company owns or operates 45 TV stations, mostly in the Southwest, plus 57 radio stations. It has a huge outdoor advertising unit that supports nearly 11,000 venues.
But here’s an interesting twist: Entravision is the largest affiliate of Univision – the biggest player in U.S. Spanish media with a $10-billion market cap. Actually, Entravision is more of a kissin’ cousin than just a business partner. Univision owns 31% of Entravision – meaning that as a preferred affiliate, it gets first dibs on the all of Univision’s content.
For the three months ended June 30, Entravision’s net income shot through the roof. The company pocketed $5 million, compared to $1.1 million…or 355% more. And it’s plowing cash back into the company by paying down debt and repurchasing stock – a sure sign that management is committed to shoring up its balance sheet.
Entravision isn’t a fluke. There are more and more companies like it that are taking off. They have to in order to serve the rising affluence of American Hispanics. Since 1990, the number of Hispanics 18 and over who have at least a bachelor’s degree has doubled– a real sweet spot for advertisers.
And my beloved Miami? There are now 12 Hispanic radio stations, four Hispanic TV stations and the largest concentration of Hispanic publishing companies anywhere in America.
The U.S. Hispanic media market has made enormous strides since those days when I studied with James Jones.
Thirty years ago, when I found out the great news that Jones had accepted me into his writing class based on some samples I had submitted, I immediately climbed into my Austin Healy. My mission was to find a first edition of From Here to Eternity that he could autograph for me.
Of course, this predates the Internet – leaving me to drive around Miami for hours…before finally finding one. But it wasn’t until the last class, where he cried, that I got up the guts to ask him to sign it. That’s when he wrote…
“You have what it takes. Keep working. Best, James Jones.”
And I feel that the American Hispanic media segment also has what it takes for long-term gains in any language.
Happy investing,
Irwin Greenstein
November 02, 2004
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