The Motley Fool

Foolish Preview: Media merry-go-round and debt on the agenda

On US Markets overnight, all three indices rose with The Dow Jones Industrial Average rising 0.3%, the S&P 500 Index up 0.5% and the Nasdaq Composite Index 0.6% higher. US home prices picked up in April, the third month in a row, indicating the US housing market is slowly recovering.

The Australian dollar was effectively unchanged overnight, trading around parity with the US dollar.

In commodities news, gold was down 0.7% to US$1,573.20 an ounce.

A flat day ahead?

With no decisive clues from overseas markets, local news is likely to drive our markets today. The ASX SPI futures closed up just 8 points this morning, indicating the S&P / ASX 200 (Index: ^AXJO) (ASX: XJO) could show a small rise in early trading.

Investors are likely to take a wait and see approach, until the outcomes of the upcoming EU Summit are known. Tax loss selling as we approach the end of the financial year and low volumes due to the looming school holidays could weigh on our markets.

Media merry-go-round

Media stocks are likely to be in the news again, with news out yesterday that News Corporation (ASX: NWS) is considering plans to split itself in two, with film and television operations separated from its newspapers, book publishing and education assets.

Seven West Media Ltd (ASX: SWM) announced last night that it had no news, apart from the management changes announced yesterday, and wasn’t considering a capital raising, despite ongoing speculation in the market.

Investors are also likely to be waiting on further developments surrounding bids for Consolidated Media Holdings Limited (ASX: CMJ) by News Corp and Seven Group Holdings Ltd (ASX: SVW).

Fairfax Media Limited (ASX: FXJ) and Ten Network Holdings Limited (ASX: TEN) could also feature today, with billionaire Gina Rinehart holding stakes in both companies.

Twiggy on the prowl

Fortescue Metals Group (ASX: FMG) boss Andrew Forrest announced yesterday that he had purchased $62m of Fortescue stock last week, perhaps in an effort to clear out the short sellers, who are pressuring the stock to fall.

Deutsche Bank analysts yesterday named several stocks with relatively high levels of debt that could be forced to raise equity to shore up their balance sheets including Alumina (ASX:AWC), Aquarius Platinum (ASX: AQP), Boral (ASX: BLD), Downer EDI (ASX: DOW), Leighton Holdings (ASX: LEI), Myer Holdings (ASX: MYR), OneSteel (ASX: OST), Paladin Energy (ASX: PDN) and Seven West Media.

Foolish takeaway

Should the world experience GFC part II, companies with little or no debt should see their share prices hold up better than those who are forced to raise equity at highly discounted prices. As always, we remain sceptical of companies that employ significant debt. As John Maynard Keynes famously said, “Markets can remain irrational longer than you can remain solvent” – and the same applies to highly-leveraged companies. Tread carefully, Fools!

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Motley Fool contributor Mike King doesn’t own shares in any companies mentioned. The Motley Fools purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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