TODD LOWENSTEIN
PORTFOLIO MANAGER
HIGHMARK VALUE MOMENTUM FUND

COMPANY: News Corporation
TICKER: NWS-A (NYSE)
PRICE: $18.39
52-WEEK RANGE: $13.94-$19.57
MARKET CAPITALIZATION: $58 billion

Todd Lowenstein is the portfolio manager of the HighMark Value Momentum Fund with around $500 million under management in the fund. Mr. Lowenstein spoke with Katharine Herrup of The New York Sun about why News Corporation should make a strong comeback.

Why did you choose News Corporation?

They have an attractive global portfolio of media content and distribution assets, which we thought was underpriced due to temporary issues – some have been played out and we think others will still be lifted. The stock price got down to $14 in November of 2005. There was excessive selling pressure as they were transitioning – they were re-domiciling from the Australian exchange to the New York Stock Exchange. It was a great period to capitalize on selling pressure. The second issue, which has not played out yet, is that Liberty Media, which is run by John Malone, took a stake in News Corporation, and investors were worried that John Malone would challenge Rupert Murdoch, who runs News Corporation, in the control of the company. This is still overhanging and has yet to be played out.

Hang-up no. 3 is their Internet strategy whereby they were going to acquire properties they didn’t own to take advantage of their content and distribution. They bought Myspace.com, which they overpaid for, but it is growing rapidly. It turned out to be quite a strategic asset with massive growth potential. I think it’s now a top 10 Web site of traffic and has 80 million registered users.

The fourth thing was a macro issue. Media companies have really been unloved and out of favor by investors. These used to be growth companies and empire businesses. Investors are worried about media content becoming devalued because the Internet is making all of this information free.

What are News Corporation’s assets?

They own the New York Post, 20th Century Fox, Fox News Channel, and newspapers in Britain and Australia. They own some of DirectTV, British Sky Broadcasting, Gemstar (an interactive programming asset), and 100% of Sky Italia. News Corporation is sitting on $5 billion dollars of cash, which is 10% of their assets. We don’t think the market is fairly valuing these assets – it is underlying their quantity and quality.

What’s driving News Corporation’s growth forward?

Returning cash back to shareholders. They just doubled their stock buyback from 3 to 6 billion so we are very happy to see that and think it’s a good capital allocation decision and should help sentiment around the stock. They increased their dividend (instead of buying more companies they are returning cash back to shareholders in event they can’t find good opportunities).

Fox News Channel – 10 years ago when channel launched, Fox had to pay these guys to put this channel on, and Fox viewership has exploded (two times that of CNN). A contract signed 10 years ago will be up in a year or so and will be renewed at a much more favorable rate, which will drive profits.

Also, there is improved sentiment around Fox Interactive, which is their Internet properties, and they will integrate this with their core media assets to leverage and compliment their distribution assets.

Is it a good time to buy?

We think its worth anywhere from 22-24, so it’s still a good time to buy. We are not sure how quickly it’s going to get there, but you’re getting a bargain.

What are the risks?

The biggest risk for News Corporation is that they are very much tied to advertising, which is under pressure from audience share erosion from new forms of media (the Internet, DVDs, and DVRs).