General Election Means Ads Everywhere
What’s the first thing that comes to mind when you hear "General Election"?
For me, it’s "ads."
As the general election cycle ramps up, one thing is certain: you won’t be able to pick up a paper, turn on a TV, look at your phone, or use your computer without encountering a flood of campaign ads.
It's estimated that more than $12 billion will be spent on political advertising in 2024, a 30% increase from 2020.
I despise these ads to the point where I find myself reading more during the season.
However, there's a silver lining: the campaign ad season generates a set of seasonal trades that I focus on every four years.
Today’s Fast Profit trade idea capitalizes on this.
Media Companies in Focus
Two well-known media companies have appeared on my bullish watchlists over the past few weeks. These same companies were on my radar in 2020, and I recall a similar pattern in 2022 during the midterm elections.
The major difference between the two stocks is their price. One trades above $30, and the other below $10. Typically, sub-$10 stocks are more speculative and volatile but can offer exciting trade opportunities.
Today, I'll present the higher-priced stock and cover the second in tomorrow morning’s Money Morning Buzz.
First Up: Fox Corporation (FOXA)
Do I need to say more?
Fox Corporation, home to Fox News and numerous cable channels, owns 29 full-power broadcast television stations in the U.S. Next to the privately owned Hearst Corporation, Fox is one of the largest media companies.
While many of Fox's channels have a specific lean, our focus is on the advertising revenue driving higher stock prices.
Despite an 18% year-over-year revenue decline in the latest earnings report, and an 8% decline in the previous quarter, Fox has maintained bottom-line earnings growth and better-than-expected earnings per share.
The stock market is a “discounting mechanism,” meaning we invest based on future revenue and earnings, not necessarily current figures.
Fox’s recent revenue drops are expected to reverse as election-related ad spending increases, boosting top-line revenue and earnings per share, a scenario investors are buying into now.
Technical Indicators
FOXA shares are currently in a newly formed intermediate-term bullish trend that began in mid-April, signaled by the 50-day moving average trending higher.
On April 8, the stock’s 20-day moving average crossed above the 50-day trendline, creating a “Silver Cross” pattern, indicating growing bullish momentum.
Shortly after, Fox’s price trends formed a “Golden Cross,” signaling strong long-term momentum.
At $32, FOXA shares are poised for a move to new 52-week highs, which will attract more buyers, including the Wall Street analyst community.
Wall Street Sentiment
Wall Street sentiment towards Fox is currently neutral, with 23 analysts
covering the stock: more than half recommend it as a “hold,” while nine rate it as a “buy.”
As FOXA begins a new rally, analysts are likely to upgrade the stock from “hold” to “buy,” driving institutional and retail investors to push the stock higher.
Potential Short Squeeze
Fox is also a short squeeze candidate. Short sellers have increased their bearish bets on FOXA as the stock has risen. Nearly 24 million shares are shorted, accounting for 10% of the stock’s float, enough to trigger a short squeeze rally.
Short sellers profit by selling borrowed shares with the intent of buying them back at lower prices.
They lose money when a stock goes up, forcing them to buy back the stock to close their losing positions.
Positive news or price triggers can initiate a short squeeze. For FOXA, crossing $33 and then $35 could trigger such a rally, driving the stock towards $40 in a fast, aggressive move.
From there, the chart suggests a continued rally towards $45 and $50 as election season ad spending peaks.
How to Position for FOXA’s Bull Run
Based on my analysis, Fox is a buy at its current price, with a long-term price target of $50.
I expect the stock to reach $40 ahead of the elections in November, offering a 25% gain.
Options traders might consider the January 17, 2025, FOXA $35 Calls, currently priced at $2.70 per contract. If FOXA hits $40 before November 1, this option could be valued at $5.52 or higher, leveraging the move by just over 2:1 for returns of 105%.
The company's next earnings report is set for August 7, 2024. Investors should reassess their positions before this report to decide whether to close or hold through this event.
About the Author
Chris Johnson (“CJ”), a seasoned equity and options analyst with nearly 30 years of experience, is celebrated for his quantitative expertise in quantifying investors’ sentiment to navigate Wall Street with a deeply rooted technical and contrarian trading style.