There are some media stocks to sell that I believe are too risky for investors to hold onto. These brands are facing significant challenges, grappling with disruptions from streaming, cord-cutting and changes in consumer behavior. While they were once dominant or emerging players, their traditional business models are now under immense pressure, and their ability to adapt remains uncertain.
Beyond the inherent risks associated with these media stocks, investors should also factor in the opportunity cost of tying up capital in these struggling stocks. While they may still generate some returns, the potential upside is likely limited compared to other sectors and companies better positioned to capitalize on more favorable conditions.
For instance, investing in rapidly growing tech companies at the forefront of innovations like artificial intelligence, cloud computing or even the metaverse could yield much higher returns over the long run. Simply holding an ETF that tracks the Nasdaq or S&P 500 may provide far higher risk-adjusted returns.
So here are three media stocks to sell for March.
AMC Entertainment (AMC)
For the meme stock, AMC Entertainment (NYSE:AMC), the cinema sector has faced significant challenges, including shifts in consumer behavior and the impact of digital streaming. There doesn’t seem to be an end in sight for AMC’s issues, making it one of the first media stocks to sell that should be on investors’ watch lists.
The company’s problems are revealed in its stock price. AMC’s stock price decreased by 33.1% from the beginning of 2024, moving from $6.11 to now trading at approximately $4.09. There was an increase in short interest in February, with short interest totaling 31,750,000 shares, an increase of 8.1% from the previous month. Approximately 12.1% of the shares of the company are short-sold, which can be partially explained by its lackluster results last quarter and the lack of hope for improvement in the future.
AMC reported a loss of 54 cents per share, albeit an improvement over the consensus estimate of a 70 cents loss per share. The company posted revenue of $1.10 billion for the quarter.
Paramount Global (PARA)
Paramount Global (NASDAQ:PARA) experienced the lowest return among S&P 500 stocks in February 2024, with a significant decline of 25.9%.
Financial health and debt levels are central to my bearish outlook on PARA. The company is reported to carry a significant debt load, with concerns about its debt/ EBITDA ratio, which is 42 at the time of writing. I see that as significantly impacting its ability to invest in growth opportunities and return value to shareholders.
There are also other issues with PARA besides its high amount of debt, namely how inefficient it is at generating profits and returns for shareholders. Its return on equity is negative at -2.8% and it generates just 23 cents of free cash flow per share.
Those issues are enough for me to suggest PARA as one of the media stocks to sell, as it can’t seem to find a stable footing against more successful stocks like Netflix (NASDAQ:NFLX) and free online streaming services such as YouTube.
Warner Bros Discovery (WBD)
Warner Bros Discovery (NASDAQ:WBD) also showed a notable decline in February 2024, with its stock decreasing by 12.62%. I also think it’s one of those media stocks to sell due to similar reasons as PARA — the inability to carve out a differentiated service for itself.
The company achieved a direct-to-consumer adjusted EBITDA of $111 million in Q3, marking a significant year-over-year improvement. However, the revenue for Q3 was $9.98 billion, only slightly up from the previous year, impacted by lower TV revenue from strikes and a decline in network content revenue.
Strikes in Hollywood and a weak advertising market led to a wider-than-expected loss in Q3 2023 for WBD. Meanwhile, Wells Fargo (NYSE:WFC) downgraded WBD due to a lower earnings outlook for 2024 and 2025, citing these financial challenges and a less favorable outlook for mergers and acquisitions.
There are better media stocks out there for investors, and, to me, it’s unclear how WBD can continue its operations unless a drastic change takes place, which seems unlikely.
On the date of publication, Matthew Farley did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
