Bears start running with Wall Street bulls

Analyst Vogel: Market still skating on thin ice

The bulls are massing again on Wall Street, with media stocks enjoying some of their biggest rallies in recent memory.

Motivated by interest rate cuts, strong upfront TV ad sales and the prospect of FCC-inspired dealmaking, buyers are flocking to the Big Board.

So why are some new pundits so nervous? Could the current boom be purely sentimental? Are the underlying fundamentals of the media oligopoly shaky?

This is the view of a small but increasingly vocal group of contrarian media bears, lured out of hibernation by Elliot Spitzer‘s call for research objectivity.

Ex-PaineWebber and Kauffman analyst Paul Kim hung his eponymous equity research shingle last week slapping “sell” ratings on AOL, Disney and Viacom and “holds” on News Corp. and Fox.

Rich Greenfield, formerly a buy-minded media analyst at Goldman Sachs, has changed his tune since moving to independent Fulcrum Global Partners. Greenfield last week launched coverage of the media congloms with “sell” calls on Disney and Fox, along with “neutral” positions on industry favorite Viacom and Liberty Media. Greenfield does favor the upside, however, of a beat-up AOL TW.

He’s negative on the outlook for broadcast TV networks, TV and film production businesses as well as theme parks. But he’s reasonably enthusiastic about premium and ad-supported cable nets as well as cable and satellite systems.

These new bears are suspicious of misplaced euphoria in the recent rally and claim many entertainment industry stocks are already fairly valued, if not over-valued, based on their fundamentals. They say those beefy upfront price increases may not hold for the balance of the year, and maintain media deregulation is a non-event.

“This market is still skating on thin ice,” says portfolio manager and former Merrill Lynch analyst Hal Vogel, who’s concerned about long-term entertainment industry growth rates amid price cutting and consumer sluggishness.

Still, fundamentals and stock price movements aren’t always in sync, especially when the government is plying aggressive fiscal policy — such as the prospect of the Fed’s 14th interest rate cut in the past three years — and the country is starving for good news.

“When stocks get bid up it’s rarely irrational. It’s in everyone’s interest to be optimistic,” says Kim, who advises his clients to sell during the summer economic euphoria and buy in the fall, when the upcoming Olympic Games and the political ad market perk up moods again.