THERE’S an obvious reason why Clear Channel Communications’ stock has lost a quarter of its value over the last month – and there is a much less clear explanation.
And depending on which reason you believe most, Clear Channel’s stock is either destined to rebound smartly – or going nowhere but down.
First, the obvious. Clear Channel is a San Antonio, Texas-based media company that owns, programs and sells airtime for various U.S. radio and television stations. And it has done darned well over the years, turning itself into the biggest U.S. radio company.
But investors are starting to worry that the U.S. economy is slowing and that ad sales won’t meet expectations, especially in radio. The bursting of the Internet bubble isn’t helping, since many of the dot-cons were the ones pumping up Clear Channel’s profits just six months ago.
So Clear Channel’s stock dipped along with the shares of a lot of other radio owners. I wish that was where the story ended.
But Clear Channel’s stock managed to get all the way down to $62.31 yesterday, because a bunch of traders outsmarted themselves last week.
First, some background. Early this month, Clear Channel closed a deal to acquire AMFM Inc., another radio company.
Because Clear Channel’s stock is part of the Standard & Poor’s 500 index and AMFM isn’t, traders figured that index-fund managers would have to buy Clear Channel shares after the merger to keep their funds properly weighted in S&P shares.
It all made a lot of sense, especially when rumors started to spread that the index funds had placed orders to buy between 12 million and 15 million Clear Channel shares. Order imbalances on the “buy” side were announced at the end of several trading sessions. The funny thing is – OK; it wasn’t exactly funny to professional traders – that nobody actually bought the Clear Channel shares. In fact, rumors quickly spread that one index fund – perhaps Janus – was actually selling into the rumor.
“A lot of wise guys got clobbered,” said one trader who didn’t bite on the story.
What’s the moral of this story?
If the advertising business really is in for hard times, then Clear Channel isn’t a stock you want to own. But if shares of this radio stalwart are simply reeling because of a clever trick one group of traders played on another, then there is probably plenty of potential in this 25 percent off stock even if ad sales do slow.
*
Is Cendant getting ready to sell assets?
The conglomerate with a bunch of well-known brands – but a lousy stock price – is expected to sell assets and conjure up other ways to enhance shareholder value. But its stock has been sickly lately because rising interest rates are hurting its real estate (Century 21 and Coldwell Banker) units and its travel business.
Cendant’s stock is also still shakey from the massive accounting fraud perpetrated on the company by some former executives.
But Wall Street seems to be warming again to the company. Salomon Smith Barney has a “buy” rating on the shares but says they are high risk. And the brokerage firm recently praised the company for its Internet potential.
But there’s a problem.
Little-known Inman News says on its Web site that Cendant is exploring the sale or strategic alliance of its Move.com with Homestores.com. Inman says the discussions have reached a “very serious stage” although no contract or letter of intent has been signed.
The companies wouldn’t comment.
Cendant recently sold its AutoVantage car buying service. But Move.com was supposed to be a keeper, with an initial public offering once postponed and expected to be rescheduled for later this year.
*
The death of one U.S. Senator is giving the managed health care industry some reason for worry.
Georgia Republican Sen. Paul Coverdell died suddenly this summer and his place was filled by Democrat Zell Miller until an election in November.
The Republicans still have a four-vote majority over Democrats in the Senate. But on the issue of providing patients with a strong bill-of-rights, including beefed up power to sue health care companies, Coverdell’s death could result in a 50-50 tie.
Last week two Democratic Senators including Ted Kennedy promised to get the issue back on the agenda. If a tough bill does manage to pass – still a long shot – companies like Aetna, Cigna and Humana would feel the sting. The bill that would hurt the health industry the most is the Norwood-Dingell bill, which has a tough right-to-sue provision.
* Please send e-mail to
jcrudele@nypost.com