It’s a court ruling that could change an entire industry… and make investors a lot of money.

On June 13, U.S. District Judge Richard Leon ruled that communications juggernaut AT&T could buy entertainment heavyweight Time Warner.

This could arguably be the most important court decision of the year.

This is no small merger. AT&T is a $230 billion company. Time Warner’s market cap is $85 billion. The combined company would be a $300 billion behemoth…

The Trump administration challenged the merger, citing fears that it would reduce competition and jack up consumer costs.

Judge Leon disagreed, saying that the government failed to show that the merger would cause higher prices or harm consumers.

He also refused to temporarily block the merger for a possible appeal by the government. The merger had been on hold for 18 months.

This ruling is a watershed moment for the media industry. It will open the floodgates to deal-making in the fast-changing world of entertainment production and distribution.

That will create money-making opportunities for investors.

Content Is King

We often hear that “content is king.” (Many people credit Bill Gates with coining the phrase.) When it comes to investing, the aphorism rings true…

When a medium first begins, it’s the manufacturers who make the most money.

For instance, in the early days of television, TV set makers like RCA and Westinghouse profited handsomely.

But the long-term winners were those who delivered the information and entertainment via the medium. Those were traditional networks like ABC, CBS, and NBC.

The same thing happened with the personal computer.

At first, PC makers like Compaq and Dell were the winners. Later, content providers like Microsoft and Facebook ascended the throne.

Today, we’re seeing this scenario play out with broadband subscription services like cable, internet, and satellite providers.

In the late 1990s, America Online and Dish Network were market leaders. But they simply allowed people to access what they really wanted: entertainment.

People don’t really care which provider distributes Game of Thrones, The Office, or Monday Night Football. They just want the cheapest way to access their favorite shows… whether it’s cable, internet, or satellite.

AT&T realizes this. It has limited ability to raise prices on its cable packages. It knows consumers won’t buy cable if they can’t watch the shows they want.

Content producers know this as well. The producers of hits like The Walking Dead can charge more money for the right to distribute their shows… and in the process, wipe out most of AT&T’s profits.

If AT&T wants to grow, it will need to become a content provider, too. That brings us to Time Warner…

Time Warner Isn’t a Cable Company

Most people outside of the financial world still think of Time Warner as a cable company with bad customer service.

But Time Warner spun off its cable business in 2009. (Charter Communications bought Time Warner Cable in 2016.)

Today, Time Warner is purely a content creation business. Time Warner owns:

  • Warner Brothers: Producer of movies, TV shows, and video games.

  • Turner Broadcasting: Owner of cable networks like CNN, TNT, TBS, and the Bleacher Report website.

  • HBO and Cinemax: Networks providing premium pay TV channels and streaming services.

That’s the content people are willing to pay for.

(For instance, HBO added 15 million subscribers over the past seven years. The number of cable TV subscribers fell by over 10 million during the same span.)

When the merger is complete, AT&T will have plenty of content. It will also have more leverage in content negotiations with other distributors.

The Race for Content Is On—And These Will Be the Winners

The same day the judge ruled in AT&T’s favor, Comcast (parent company of NBC) offered $65 billion to acquire 21st Century Fox’s (FOX) entertainment assets.

That topped Disney’s (parent company of ABC and ESPN) $52 billion offer. Right now, FOX trades around $44. Comcast’s initial bid was $35 per share. The market expects a bidding war to increase the offer price.

Disney, Comcast, and Fox are also in a three-way battle for British media company Sky. The bidding war has boosted Sky’s price by nearly 100%.

Now, most of the good news has been baked into Sky and Fox. So it’s probably too late to make triple-digit gains in those companies.

There aren’t many content creators in the public markets. That makes the few out there tempting takeover targets. They include:

  • AMC Networks: Owner of AMC and The Walking Dead franchise. These shares have run up in anticipation of a potential deal, but there’s still room to go higher.

  • Viacom: Owner of Paramount, Nickelodeon, Comedy Central, and MTV.

  • Discovery: Owner of Discovery Channel, Food Network, and HGTV.

  • Lionsgate: Owner of Lionsgate Films and Starz Network.

  • MSG Networks: Owner of the broadcasting rights to New York professional, college, and high school sports teams.

These companies are all in the sweet spot that larger media companies are looking for.

Takeover targets can be volatile, so don’t risk any more than you can afford to lose. And always do your own research before buying shares of a company.

Regards,

Nick Rokke, CFA
Analyst, The Palm Beach Daily

P.S. We’ll be watching the aftermath of this historic ruling to find more money-making opportunities… Meanwhile, you can tell us whether this is a trend you’d like to ride to greater profits right here…

CHART WATCH

Nick’s Note: Today’s Chart Watch comes from our new resident whale hunter, Palm Beach Trader editor Jason Bodner. Jason tracks where big institutions are headed. That’s because when these “whales” start buying, they can lift stocks much, much higher. Today, his system is flashing unusual buying in internet stocks.

Internet Stocks Are on a Tear

My system has been flashing unusual institutional (UI) buying signals for years on large internet stocks like Facebook, Amazon, Netflix, Google. (You can read more about my system in Monday’s Daily right here.)

But over the past couple of weeks, we’ve picked up renewed UI activity in these online behemoths.

One way to play this activity is through the First Trust Dow Jones Internet Index Fund (FDN). FDN holds many of the world’s biggest and fastest-growing internet companies. It’s been on my radar for a while.

As you can see in the chart below, FDN is up 29% in 2018. Over the past 12 months, the fund has risen 50%.

My system predicts that this fund will continue to climb higher as big money pours into these tech leaders.

If their leadership positions were to fade, I’d expect a pullback in the overall market. But that would most likely be temporary. I view pullbacks as great opportunities to get into winning stocks… just like the big, smart institutions do.

For now, my data continues to point to buying in leading stocks in this market… especially large internet names. Keep FDN on your radar.

Stay bullish…

—Jason Bodner

MAILBAG

Our report card on whether President Trump is achieving his campaign pledges continues to stir the pot…

From Dustin S.: President Trump was not my first choice… but he’s our president. As far as his report card—he’s doing what he said he would do. You can disagree with his vision and some of his tactics, but he’s doing what he promised… And that’s a rare trait in politics today.  

IN CASE YOU MISSED IT…

This former banking insider reveals the details surrounding a little-known stock that could be on the verge of a historic breakout. In the past, similar stocks have shown investors 96,900%, 196,500%, and 787,400% gains.

He’ll tell you why he believes this opportunity is set to ride this new wave and how you can get in now before it starts to rise. Learn more right here…