Why Hedge Funds Love News Corp.

Value and growth investors often invoke the "invest in what you know" mantra. It's a very shortsighted strategy that could put you into absolutely terrible companies, but it certainly has its merits as well. One interesting thing about it, too, is that its followers invest in those companies they see all over the place and like.

In that same vein, they actively avoid investing in companies they see all over the place and don't like. I find the company up for discussion today to be just such a no-gooder, and I have never considered it as an investment. But it turns out it's a heck of a holding and has earned a place in the portfolios of some major fund managers. Let's see what the all of the fuss is about.

Bad news, great returns
I realize this is a very partial, subjective statement, but I think News Corp. (Nasdaq: NWS  ) 's Fox News channels are an insult to journalism, the news, and the United States. A strong stance? You bet, but I have a hard time believing a news channel that employs people who are also actively paid by political parties.

Enough of this jibber-jabber, though, because it turns out News Corp. is a great investment. The company operates all divisions of aforementioned Fox. It also owns the publisher HarperCollins, the Dow Jones, and my morning coffee companion -- The Wall Street Journal.

What makes it such a great holding? Despite my views on Fox News and its backwards view of reporting, it gets incredible ratings, which in turns draws higher-than-average advertising revenue. Compare it with Time Warner (NYSE: TWX  ) 's CNN, whose primetime news has been slipping in viewership and ad revenue for years. It's now in fourth place behind its sister network HLN. Luckily for Time Warner, primetime isn't everything. CNN's international division, along with CNN airport media, make it one of the most profitable news companies around, even if its ratings have gone down the tube.

In addition to Fox News, The Wall Street Journal -- as you probably know if you're on this website -- is the go-to newspaper for all things finance. There are alternative publications available, and many observers debate the newsworthiness of some of the WSJ's content, but show me a single office or investor that doesn't get a copy delivered to the door or the iPad every morning.

In the news game, News Corp. has a far reach and immense profits.

The other Fox
Another Fox division that's shining is 20th Century Fox. The production company has had a good year, with releases such as Ice Age: Continental Drift 3-D. Ticket sales for 3-D flicks are the most profitable in the business. Couple that with the fact that any Ice Age franchise film is a guaranteed golden ticket, and you've got yourself a winner. The company also released Titanic 3-D, which I don't quite understand, but nevertheless it did tremendously well in its theater rerelease.

Looking forward, 20th Century Fox has an exciting book of business. The company is distributing DreamWorks Animation's (Nasdaq: DWA  ) upcoming films from 2013 to 2016. In an industry first, DreamWorks is releasing 12 CG films in four years -- all released through Fox. DreamWorks has a great track record with its animated films, and the upcoming jam-packed slate shouldn't disappoint.

Film is a tricky business, but it looks as though News Corp.'s Fox gets an "A" for its busy upcoming schedule of high-profile films.

Popular business
News Corp. is a multimillion-share holding of these major hedge funds:

  • Highfields Capital
  • Eton Park Capital
  • Viking Global
  • Baupost Group
  • Lone Pine Capital
  • Elliot Associates

Just because these funds have bought major stakes in the company, that doesn't mean it's a guaranteed win for your portfolio. But when an investor like Seth Klarman (of Baupost) buys 15 million shares of anything, I tend to listen.

News Corp. certainly attracts a lot of attention -- and quite a bit of it is negative. Yes, its run by a man who sort of looks like Emperor Palpatine, and yes, the company has a range of ethical woopsies from privacy invasion to being the fourth branch of government for the GOP. But the stock has gone from less than $19 a share to steadily rise to almost $25 today. And it doesn't look like things are slowing down anytime soon. You may be wise to imitate the big-time investors who are loading up on News Corp.

For a look at other stocks that only the smartest investors are buying, read this special free report.

Fool contributor Michael Lewis owns none of the stocks mentioned above. You can follow him on Twitter, @MikeyLewy. Motley Fool newsletter services have recommended buying shares of DreamWorks Animation. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


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  • Report this Comment On September 17, 2012, at 1:13 PM, kansasborn wrote:

    I usually like to read these articles, but today and with this one, I really am offended by the author's remarks re Fox News. People who really want to know what is going on in this world have to watch not only the 3 extremely biased networks in our country, but watch

    Fox News as well in order to get the true picture from which to make decisions. The refusal of a lot of our citizens to make available to themselves both sides of the story really bothers me - probably because in my earlier years, I was an educator who really wanted to consider all sides and then make decisions. Today, our students are not taught that, but instead are influenced by teachers who only want to present their own thoughts. It is a really destructive thing for our young people and this article reflects those very destructive ways.

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