US Equities (^GSPC, ^DJI, ^IXIC) have been on a tear in February due in part to major tech stocks. Many investors now look more broadly to see where else in the market there may be opportunities for portfolio additions.
Ariel Investments Founder, Co-CEO, and CIO John W. Rogers Jr. joins Yahoo Finance to give his insight into stretched valuations and why Paramount Global (PARA) may be a bright spot in the market despite its recent disappointing performance.
With the right partner, Paramount could expand its profitability, Rodgers Jr. explains: "The content is there. You look at them, go to the Paramount Studios where you've got 'Top Gun' and 'Mission: Impossible' and 'The Godfather' –– it's very, very valuable content. We think they'll be able to monetize that over time. They might need a partner. Most likely, they will need a partner, because it's hard to be sub-scale, competing against the giants. But we think that will be a possibility that will happen hopefully sooner rather than later."
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SEANA SMITH: John, you mentioned some of those opportunities in a beaten down names. One of the beaten down names that you are a shareholder in is Paramount. We heard their results out earlier this week. And this is a company that's really struggled to compete in a space that has extremely high number of competition.
I'm curious why you see value in Paramount and where you see that value?
JOHN W. RODGERS, JR: Well, it's been very, very, very disappointing. It's one of our worst stocks over the last couple of years. It's just been extraordinarily disappointing. I think what we see there is that Sumner Redstone always said that content is king. They have extremely valuable content.
You think about a Sunday a couple of weeks ago, where you could watch the Super Bowl and see that great content and world record eyeballs watching the Super Bowl. You had the Grammys that were extraordinarily successful this year. You have so many great franchises from "CSI to "60 Minutes."
The content is there. You look at them. You go to the Paramount Studios, where you've got "Top Gun" and "Mission Impossible" and "The Godfather." It's very, very, very, very valuable content. And so we think they'll be able to monetize that over time.
They might need a partner. Most likely, they will need a partner, because it's hard to be sub-scale competing against the giants. But we think that will be a possibility that will happen hopefully sooner rather than later.
SEANA SMITH: John, any ideas of who would make the most sense when it comes to that potential partner? And then when we talk about more broadly speaking consolidation within the industry, is that going to better position-- it sounds like you might think so-- some of those smaller names that have been struggling?
JOHN W. RODGERS, JR: Yeah. I think that the stronger-- the smaller companies are going to have an impossible time, as the years go on. If you're one of the small streamers, you think about Paramount Global. We have a great contract with the NFL. Extremely valuable. It'll be a decade or so before that contract gets renegotiated, maybe nine years from now.
And you'll start to think, if you're one of the small guys, you're not going to be able to have the dollars to compete with the giants. So I think what you'll see is that the Netflix of the world, the Apple's of the world realizing that they're the ones that have the scale. They'll buy some of the smaller companies and make it work. Or some of the smaller companies will come together to be able to be a competitive threat for the big guys.
But either way, everyone realizes the small folks are at such a disadvantage today. They can't survive unless they're able to come together and find creative ways to make sure that they have the resources to continue to have the best content.
SEANA SMITH: John, would an Apple or a Netflix-- would that be potentially the right partner here for Paramount?
JOHN W. RODGERS, JR: Well, that's what I would think. I don't have any insight to those boards of directors or to be able to tell you what they're thinking. But, sometimes, companies that have been reluctant to make strategic acquisitions-- one year, you jump ahead. A year or two or three, they see a different landscape. They see a different future. And realize to be successful, they have to change their traditional thinking.
And I think it'd be great for them to be able to have a wonderful historic place like Paramount. That studio is so valuable. That backlot is so valuable. Instead of trying to do everything yourself, why not merge with a company that has shown they can do it very well for a very, very long period of time?
BRAD SMITH: John, it's been lauded and really noted over the multiple decades of your career, your contrarian approach to investing here. If there was a playbook that you're employing for the rest of 2024, what would it hinge on? And what would the core theme of that be?
JOHN W. RODGERS, JR: I think that for us, we are contrarians. We like to buy things that are out of favor, things that are neglected and misunderstood. And so we've been focused on a couple of areas, not only the media areas, which we've talked about Paramount, but companies like Madison Square Garden Entertainment that owns the Garden itself, and an extraordinary asset, the world's greatest arena.
The Sphere that has become one of the most talked about arenas in the world. We think that's a really valuable asset that's going to grow and thrive. And then you look at some of the leisure-related companies, the consumer products companies like Royal Caribbean. People are cruising more than ever. People are enjoying time away.
We think that people love experiences. So we're trying to find those types of businesses. And then, finally, some of the housing-related stocks that really had a difficult year last year for us, a few of the companies.
So we look at an ADT, for example. They do so much with security around the United States. Great partnerships with State Farm and Google. That's the name that we think will do well in 2024.