Nexstar Media Group (NXST): NXST reported good 3Q24 earnings despite a shortfall in political advertising revenue.  Political ended up flat with the 2020 Presidential cycle after expectations had been raised over the summer for growth.  NXST offset the shortfall with improving results at the CW Network and good expense control.  The shares initially rallied to an 18-month high after management outlined a confident outlook for 2025 and indicated the new administration and Congress was likely to deregulate the local TV broadcasting industry.  As the industry leader with a strong balance sheet, lots of free cash flow, and a successful history of station acquisitions, NXST is poised to complete accretive M&A.  If the deals are not so large that they push leverage above 4X, we are comfortable with this path.  The shortfall in political advertising was overlooked when NXST reported.  This hit home the next day when another large TV station owner, Gray Television, missed political advertising estimates.  In fact, all the major station owners missed except for E.W. Scripps, which reported a big positive surprise.  The overall industry shortfall triggered fears that local TV political advertising could enter a period of secular decline as market share shifts to digital and streaming TV advertising platforms.  Despite NXST’s success (the stock has tripled since we first bought it for clients 7 years ago), the collapse of newspapers, radio, and linear TV networks has long had investors on edge.  NXST shares declined 12% on the day following its earnings report.  It actually held better than most of the other TV station owners!  This seems clearly an overreaction to us, and we are pleased to see the stock rebound from that decline.  Nonetheless, the bear case on the industry has new strength that is balanced by the developing but not certain regulatory relief coming from the new administration and Congress.  We expect the shares to remain in a trading range for the next few months until we see whether deregulation happens.  If it does, NXST shares have significant upside.  Regardless, the shares remain supported by excellent management, the turnaround at the CW Network, and the potential for NewsNation to further develop into a material asset as a growing cable news network.

Sony Corporation (SONY): SONY reported slightly better than expected operating profits on slightly lower than expected earnings for its 2Q24.  SONY is on a March fiscal year but still considers the year ending March 31, 2025 to be its 2024 fiscal year.  The shares responded well since the upside came from the right segments.  Video Games led the way, a segment that has witnessed slower growth over the past year.  Improved 3^rd party software sales and a stabilization in PS5 units generated the upside.  Imaging Sensors also had upside vs expectations.  This is another business that has faced challenges in the past year.  Most of the business is related to semiconductors used in high-end cellphone cameras.  Growth picked up ahead of the expected timeline and should continue as AI mobile phones trigger a replacement cycle.  The upside in operating profits for the corporation came despite a small shortfall in revenues.  This is indicative of SONY’s strong management that closely scrutinizes operating expenses.  All three of these positive drivers are expected to be sustained in 2025.  SONY also should see continued growth in its music business (#2 in the world) and corporate growth will be higher after the company spins off its financial services arm next fall.  With growth expected to pick up, we believe our patience with SONY stock will finally pay off in 2025.

Home Depot (HD): HD saw some green shoots when reporting its 3Q24 results.  Sales have been under pressure over the past year from the combination of high mortgage rates and a pull forward of demand in 2021 and 2022 related to the pandemic.  3Q24 reported sales and guidance for 4Q24 still show slightly negative comparable sales growth.  However, the declines are moderating and a return to growth could occur in 2025 if mortgage rates fall further.  HD shares were volatile after the earnings report and conference call.  Initially, they traded higher since not only sales, but earnings were better than expected.  Investors sold the shares as management explained some of the upside was do better than expected weather that elongated the home improvement season in northern climates.  Management also noted that hurricane rebuilding boosted sales in October.  Also impacting the share action was a jump in market-determined interest rates.  HD shares have always been sensitive to interest rates and the current environment is complicated by uncertainty over the impact of policy in the new Trump Administration.  As analysts dug deeper into management’s comments several green shoots appeared.  First, even after backing out the good wealth and hurricane rebuild impacts, sales showed sequential improvement.  Second, the initial impact of the controversial acquisition of SRS Distribution is quite positive.  SRS customers have dramatically accelerated purchases at Home Depot stores and the SRS trade credit program for professional contractors is being successfully extended to contractors already doing business with Home Depot.  The bottom line is management is doing everything they can with what they can control.  The core business shows initial signs of improvement.  SRS is off to a good start and if successful can materially increase the company’s total addressable market.  DIY projects are likely to improve ahead of contractors since the latter require financing and thus lower interest rates.  High-quality stocks like HD are worth waiting for and that is exactly our plan for HD.  The shares have already recovered to near their all-time highs achieved at the end of 2021.  When green shoots ignite the next leg of growth, we see substantial upside for the shares.

Walmart (WMT): WMT reported another beat-and-raise quarter, continuing a string of results that Wall Street loves.  The shares responded positively, rising to new all-time highs.  WMT is now up 68% this year, better than Apple, Alphabet, and Meta Platforms.  WMT’s results were good across the board.  We particularly liked the fact that revenue and comparable store sales exceeded expectations driven by both higher traffic and higher transaction value.  WMT also continues to benefit from its efforts in ecommerce, advertising, and fulfillment.  These are much higher growth businesses, currently growing at 20% plus vs the core stores growing revenue in the low to mid-single digits.  Advertising and fulfillment are also much more profitable businesses.  Ecommerce is still losing money, but the losses are falling fast, and profits are not far away and should ramp quickly given the fast-growing revenue.  When you add WMT’s world-class supply chain to its technology-driven growth businesses, it almost makes sense to compare the company to the Magnificent 7.  One other takeaway for WMT occurred the next day when Target reported earnings.  Target’s results were weak, and its forecast was much weaker than expected.  Target same stores sales grew less than 1% compared to 5% for WMT.  Looking to the critical holiday quarter, Target forecast negative comparable store sales verses an expected gain of 3-4% for WMT.  In ecommerce, WMT grew over 20% last quarter and projected more of the same of the same.  Looking ahead, WMT forecasts continued growth in excess of 20%, while Target will struggle to get to double-digit growth.  Our investment thesis for WMT has been that it is gaining market share and improving profitability at the same time.  The comparison with Magnificent 7 and contrast with Target suggest that our thesis is intact.  WMT shares are no longer discounted but there is reason to expect continued gains as long as fundamentals are strengthening.

NXST, SONY, HD, and WMT are widely held by clients of Northlake Capital Management, LLC, including in Steve Birenberg’s personal accounts.  Steve is the sole proprietor of Northlake, a registered investment advisor.  Northlake’s regulatory filings can be found at www.sec.gov.