5 Media Stocks to Avoid

The media industry can be hip and happening. As an investor, you might think, "I watch TV, I read the newspaper, and I listen to the radio. Why not invest in the very things I spend much of my leisurely time doing?" Pretty Lynchian, dontcha think?

Not so fast. The media industry is taking it in the chin now as its main revenue source, advertising, has fallen off a cliff. The advertising slump has hit the sector broadly, some parts more than others. Local television stations, for example, owned by major networks are feeling the brunt more so than the network level. Ad sales have fallen as consumers have reined in spending for all kinds of products, and once-stable ad spenders, like General Motors (NYSE:GM), have pared ad spending. News Corp. (NYSE:NWS) and Viacom (NYSE:VIA-B) recently reported discouraging quarterly results due in large part to lackluster ad sales.

Then there's the credit crunch that's taking out players. Microsoft co-founder Paul Allen's company Charter Communications, the fourth largest cable-TV company in the nation, said it would file for Chapter 11 bankruptcy by April 1 after leveraging to the hilt ($21 billion) to pursue an expansion strategy through a string of acquisitions.

Still there are others with internal operating problems. Sirius XM Radio (NASDAQ:SIRI) has had issues in the past, and this credit crisis has simply accelerated the company into its current troubles. Now it's up to John Malone's Liberty Media (NASDAQ:LCAPA) to save the company, which is on the verge of bankruptcy, through taking an ownership stake.

To uncover media stocks at the bottom of the heap, I did a screen using the Motley Fool's CAPS screening tool. I looked for companies that were:

• Part of the media industry
• Had CAPS ratings of three stars or less (CAPS ratings are out of five)
• Had market caps of $250 million or greater

Running the screener today, here's what I found:

Despite what appears to be a thicket of thorny problems, some of the difficulties stem simply from systemic economic downfalls -- in which case it's worth it to watch the sector to see if those that are simply hard-hit by hard economic times will come out leaner.

Wait for signs that the economy is recovering before dipping in a toe, however. The stock market will likely begin to bid up cyclical industries like the media industry before the economy is officially out of the recession, as the market anticipates earnings recovery. Use this as an indicator of early signs of recovery in the industry.

Remember, just as important as searching for good stocks is weeding out the bad ones. Start your search at Motley Fool CAPS today! Let the collective wisdom of our 125,000-member-strong investment community help you make better investing decisions.

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