It’s a runaway bull market for a trend we’ve been covering since last year… “the basics.”

I just can’t write about stocks today. I want to, but I can’t. My mind is on baseball. You see, I manage my 8-year-old son’s Little League team. And they had their first playoff game last Thursday.

Yes, I’ll admit it: I’m bearish on the stock market. I’m still concerned about sending more funds out into the market for one fundamental reason: Rampant energy inflation.

Soft commodities are now the best-performing sub-set of the commodity bull market. It’s easy to see why. The world’s supply is withering.

The Investment U e-Letter: Issue #783
Monday, April 7, 2008

A Contrarian Strategy: Why Clear Channel Is Today’s Top Stock Pick
by Floyd G. Brown, Advisory Panelist, Investment U

One of the most profitable investments I have made came after a magazine headline hailed the coming bankruptcy of Philip Morris. It took nerves of steel to buy the lowly MO in those days. It was after the largest legal settlement in U.S. history disgorged Morris and other tobacco stocks of profits to pay the healthcare bills of the 50 different United States. Attorney General Janet Reno attacked the company in the newspapers as merchants of death.

But in the eight years since I first bought Philip Morris, at around $19 a share, I have been paid a king’s ransom. The stock has yielded over 10% annually. I’ve seen MO’s dividends rise. The company has given me shares of Kraft (NYSE: KFT), worth more than my original purchase price. It gave me shares of Philip Morris International (NYSE: PM) this month. And for the icing on the cake, I still own all my original shares of Altria (NYSE: MO).

Why am I telling you this?

Because it says a lot about headlines in the mainstream media. They almost always get the story wrong. In this case, they were trumpeting the potential bankruptcy of Philip Morris just when the stock was cheap enough to be a long-term buy and part of my overall contrarian strategy.

Contrarian Strategies: How to Find Wall Street’s Best Deals

When markets are hot, contrarian strategies go the other way, toward the cool spots. Contrarian investors prefer to skulk around in broken sectors looking for the next Philip Morris - the next company that will pay out handsomely to hold their stock because no one else will buy it.

That’s why I enjoyed the headlines around the recent collapse of the Clear Channel deal. This one appeared in Fortune magazine: “Clear Channel’s Prospects Look Grim.”

The article continues by telling us why the radio business is dead. Then, for good measure, it tells us why the newspaper business is holding on for dear life and why the TV business is at death’s door.

The article leads you to believe there’s simply no hope for the media business. And when there is no hope, I sense opportunity for a contrarian strategy.

Let me make a prediction…

• After I die (and I am only 47 years old) people will still listen to radio, they will still read newspapers and they will still watch TV.
• By the way, similar prognosticators said the same of the movie and radio businesses when TV was invented.
• They both still exist… even after the Internet has come along and led to the prediction of an end to all these businesses.
• These media businesses will not only change, but adapt.

The winds of Creative Destruction are blowing, as Joseph Schumpeter would say, but the best businesses adjust and change with those winds. Right now, I see remarkable value in the media space. So let’s look at the numbers instead of the headlines…

4 Media Firms To Consider In Any Contrarian Strategy

Clear Channel (NYSE: CCU), with its “grim prospects,” grew revenues 5.5% last year. How many businesses do you know of on the verge of disappearing that are growing revenue? Granted, the revenue from radio was shrinking - by about 2%. But Clear Channel has 870,000 billboards scattered across the landscape and this business is booming. New technology, which allows billboards to change messages by the minute, is powering a revival in display advertising.

The operating margins in this business are 25%. All Clear Channel has to do to see clear sailing ahead is do what the private equity buyers would do. They would slash expenses, besides selling underperforming assets. Then they would take the money, pay down debt, or give themselves a hefty dividend.

Now, how tough can that be? I expect that they could fetch $8 or $9 billion for the outdoor advertising business alone. That single transaction could pay every last dollar of Clear Channel’s debts. The reason private equity firms wanted Clear Channel is because they smell profits. At 15 times earnings, and with the best assets in radio, Clear Channel below $30 a share is a steal.

Other media firms I think deserve a look are:

• Gannett (NYSE: GCI),
• Citadel (NYSE: CDL),
• And Time Warner (NYSE: TWX).

As the Olympics and Election of 2008 draw closer, these firms will show increasing earnings and depressed growth will rebound.

Radio is a “drive time” phenomenon, and drive times are increasing on our already congested roads. All four companies own outstanding assets and should flourish in the Internet era. Major media firms own some of the best Internet assets besides having the ability to tailor the news to local interests.

When the markets turn, the oversold stocks of media firms are going to come roaring back with a vengeance.

Good investing,

Floyd

Floyd Brown, a regular contributor to Investment U and The Oxford Club, began his highly successful investing career while still in high school… and made his first million before turning 30. Here are five more of his energy picks.