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.
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.
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.
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 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.
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.
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.
