Why News Corp.’s Bad Publicity May Turn Into a Profit Opportunity
It will be one year on Friday since British Petroleum (NYSE: BP) was able to cap a gushing oil well in the Gulf of Mexico and begin to mend one of the worst public relations episodes in recent memory.
One year later and it looks like we have another public relations nightmare picking up steam in the headlines – the News Corp. (Nasdaq: NWS) phone-hacking scandal.
Hindsight is 20/20
BP stock still hasn’t reached its pre-oil spill levels. To be more specific, the stock hovered around 75 percent of its value before the spill. Some would call the fact that BP is still around a success story, but not the investors who lost 25 percent of their value over the last year.
But some investors were able to capitalize on BP.
* If an investor bought the stock at its lowest point on June 25, 2010, their investment would have grown almost 70 percent.
* Of course, this was at a time when BP had failed for over two full months to stop the flow of oil.
* It was also facing major financial burdens and very poor public perception.
Hindsight is obviously always 20/20. But even if investors bought the stock last July 16, the day after the hole was plugged, the value still increased by more than 20 percent today.
Is Comparing NewsCorp. and BP Legitimate?
Obviously, the two corporations operate in completely different industries. Oil is something people need more than information or entertainment. Maybe that’s why BP still posted record profits late last April, in the midst of the spill. Shares even rose two percent that week with the news.
Business certainly isn’t surging for News Corp. like it was last year for BP. But the jump in value is somewhat comparable to investors’ reaction to Murdoch buying back $5 billion worth of News Corp. shares. Stock value rose on Wednesday and Thursday after falling on Monday and Tuesday.
Former-CEO Tony Hayward was a large part of BP’s struggles with public perception. The company didn’t really lose any stock value until the end of May and through June, months after the initial disaster. This was due partly to the costly futility of BP’s attempts to seal the leak. It also had to do with how the company was perceived by the public because of Hayward’s actions.
The companies aren’t very comparable. However, their situations may become more similar if more scandalous behavior under the Murdoch family’s watch comes to light.
Marc Lichtenfeld correctly predicted last year that BP would eventually be a solid contrarian pick. Just like he suggested, BP still had a long way to fall and the timing wasn’t right yet.
News Corp. already shut down its 168-year old newspaper News of the World and withdrew a bid to completely take over British satellite television provider BSkyB.
The worst isn’t over, either. The Financial Times reported on Monday that questionable methods could have been used at other Murdoch titles. Murdoch and his son Jamie were summoned on Thursday to testify at a phone-hacking hearing by Parliament next week.
Keep an Eye on Murdoch and Trust Your Contrarian Instincts
The worst nightmare for Murdoch could be a rumored inquiry by Congress. Several congressmen have already spoken out with intentions to probe the U.S branches of the corporation such as Fox News and The Wall Street Journal.
It’ll be interesting to see how Murdoch conducts himself if things get ugly. BP survived mostly because it’s a huge company with plenty of resources and offers a product that people need. It also helped that the hole was finally plugged and Hayward resigned.
Jeff Macke of Yahoo! Finance even postulated that there could be a positive in all this for News Corp.:
“With News of the World representing a tiny portion of the News Corp. empire and considering the company is widely believed to be far too insular at the top, traders could conclude that a little legally enforced turn-over at the top of the conglomerate may be a good thing once the dust settles.”
News Corp. isn’t BP, but it’s still a large corporation with plenty of resources. It’s hard to imagine a world without The Wall Street Journal or the Fox empire. These titles could always be bought up by other entities if the company was to disband, but they could also help keep it afloat following a resignation by Murdoch.
It’s hard to see any positives for News Corp. going forward, but last year wasn’t looking good for BP, either. Keep an eye on what happens to the Murdoch family and trust your contrarian instincts.
– Justin DoveSource: Investment U
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