A Hidden Industry That Will Benefit From Trump Winning

The financial world changed on November 5th, 2024 with the election of Donald J. Trump. Markets reacted like I thought they would. The stock market made new all-time highs with small and micro-cap companies, comprising of the Russell Index, up almost six percent. It was a reactionary move to lower taxes, lower interest rates, tariffs to benefit domestic manufacturing and the potential for a lower regulatory environment to boost GDP and productive output.

Since the reactionary move to Donald J. Trump winning another four years as President of the United States, the markets have cooled off. Stock prices over the past week have dropped. With the Russell taking the brunt of the beating. Nonetheless, the future of the United States and financial markets over the next four years will come with change. Change that I hope to profit on.

There will be many ways to profit off a Trump Presidency over the next four years. Some are obvious. And some are more obscure. The obvious trade is going long bitcoin and other crypto pumps. Trump has stated multiple times he is pro-bitcoin. There have been rumors of a zero percent capital gains tax on crypto that have been floated. Other rumors on the U.S. Treasury buying bitcoin and holding coins like we hold gold. Even rumors of a potential reserve currency. But these Trump plays are too obvious and overhyped.

Some other Trump trade ideas are to own domestic manufacturing and small businesses. Should Trump enact his tariff plan, domestic manufacturing should benefit. Building a comprehensive list of publicly traded domestic manufacturing companies is something I am working on. Companies with real assets that could experience significant output. Companies that are currently using only 50% of their domestic manufacturing capacity. The potential to sublet space, or win new business. The incremental margins on winning new business for a fixed cost operator could be significant.

But even that is too obvious. I’m sure hedge funds across the world are scrambling to find these domestic manufactures and are already placing bets. I don’t like competing with hedge funds. They have more resources than me. That is why I focus on small net-nets with tiny market caps.

Over the weekend I did some reading. I had a lot of earnings calls to catch up on. I tend to read earnings calls at night time. When the distractions of the day time are over. Then when it was almost time for me to head to sleep I read a single sentence in an earnings call that changed how I was thinking about the entire Trump trade. This sentence awakened me. And then I realized how significant Trump becoming President could be for this entire industry.

I am still doing research on this industry but everything I am reading is extremely compelling. In fact, compelling isn’t even the word to use. The word should be billions. Multiple billions. Trump winning the election could result in this niche industry pulling in billions of dollars over the next four years. And making the billions won’t be from one single source. It could be multiple ways.

In this article I will be talking about this important regulatory change that could jump start this industry. I will walk through who the key players are. How they could make billions. And what I am doing to position myself to win. This is an exciting time to be an American. Change is coming.

And I plan to profit.

Let’s keep this short and sweet.

I think over the next four years this industry could make billions. Not millions. Billions.

And it is an industry that is hated and trading at cheap multiples.

An industry that consensus thinks is dying. On the last legs. A melting ice cube of sorts.

I’m talking about television broadcasting industry. Legacy TV.

For the past three decades the world of television broadcasting has been ripe with regulations. Television broadcasters are subjected to stations caps. Which means that if you own and operate a television broadcasting business you can only own stations that touch 39% of U.S. households.

This station cap rule made sense back in the day before the rise of the tech giants. Before everyone had a screen in their pocket. The rise of Facebook, Amazon, Google, Twitter and TikTok. The rule made sure that a single entity couldn’t control the narrative of the news. But then the big tech companies of the world rose to power and everyone knows how that story has ended. Now they control the narrative.

This station cap limit has effectively created a duopoly in the Television broadcasting space. The big three players are Nexstar (NXST), TEGNA (TGNA) and Gray Television (GTN). All three of these players are at their station cap limits. They have consolidated the industry and hit their caps. Cash flows generated are now being used to pay down debt (Gray Television) and rapidly return capital to shareholders (TEGNA and Nexstar).

And it appeared like de-levering and returning capital to shareholders was going to be the new normal for quite sometime. That is until Trump took the presidency and the spectrum flipped red. The presidency isn’t that important with this story. What is important is who will take the lead of the FCC.

Right now the FCC is being led by Jessica Rosenworcel. Next year she will exit her role and the most likely contender for the FCC chairman seat is Brendan Carr. If you read nothing else, just read this tweet that Brendan fired off on November 15th.

Get this, Google makes 50x the advertising dollars that any broadcaster does. But broadcasters are not allowed to consolidate. But with a Carr lead at the FCC consolidation could happen. Which means there will be a massive roll-up among TV broadcasters, leading to financial synergies and multiple expansion.

As The Hollywood Reporter stated, Should the FCC relax ownership rules and the station cap vanish, there would be a station land grab unlike anything the country has seen.

A massive amount of M&A would occur under a Carr leadership. I think Nexstar would be the ones who will be making the majority of the deals. They have the balance sheet and cash flow profile to mop up stations in markets they do not have. Gray Television has too much debt but I wouldn’t be surprised to see someone make a “stink” bid for their stations with the equity value at $500 million. TEGNA is likely in play again too. Soo Kim of Standard General tried to buy out TEGNA before he was blocked by the FCC for $24 per share. I wouldn’t be surprised to see him make some bids. And then there are the smaller players in the industry. Sinclair Broadcasting (SBGI), E.W. Scripps (SSP) and Entravision (EVC). These three players are already sub scale where I wouldn’t be surprised to see some consolidation happening. In fact, Sinclair is looking to unload some TV stations right now and Scripps is trying to sell Bounce TV.

I think an M&A wave is very possible if station caps are lifted. It will be a spree of buying and selling we haven’t seen since the early 90s. When TV and radio were considered tech giants of the world. But the most interesting aspect of a Brenden Carr FCC Chair is the potential for a spectrum auction. Which in my theory, is why Elon Musk was so involved with the Trump presidential election.

Spectrum Auction And The Trillion Dollar Side Pocket Deal

Individuals respond to incentives. Period. Which means that Elon Musk supporting Trump through the presidential election and now into the White House was a deal of incentives. In fact, I think Elon Musk made a trillion dollar side pocket deal with President Trump that could potentially create the next trillion dollar business.

I think the reason why Elon Musk supported Trump through the presidency and into the White House is to create the next trillion dollar company. He will do this through Starlink. And to accomplish this, Brendan Carr will shut down the $42 billion Internet Infrastructure program — a program that is designed to lay cable in the ground and get internet to rural households — and instead enact a spectrum auction so Starlink can buy as much spectrum as they need.

Brendan Carr is already all over the inefficiency of the $42 billion Internet Infrastructure program. The plan was passed in 2021. To give $42.5 billion to the broadband industry to provide under-served and rural areas with internet access. To date, it has connected nobody.

Internet connected through a cable in the ground is expensive, old and outdated. But now there are emerging technologies like Starlink that could take all of the legacy broadband market share and effectively control and internet monopoly. The last big hurdle for Starlink to aggressively take market share is regulation and spectrum.

Given that Musk supported Trump through the presidency, now Trump owes Musk. I think Musk made a trillion dollar side pocket deal with Trump. In fact, I think the Trump administration is going to stop funding the legacy cable/internet industry and instead put Starlink as the last mile for cable and internet. It is much cheaper, faster and better than cable internet that costs billions to go into the ground.

If this happens it is possible for Starlink to take 100% of the market share of legacy cable/internet companies and Starlink could become more valuable than Tesla. Elon will transfer most of John Malone’s wealth to himself.

To make this happen Starlink will need spectrum. To get spectrum there needs to be a spectrum auction. Musk is already on Twitter agreeing that a spectrum auction needs to happened.

The last time a spectrum auction happened was in 2017. In the auction TV broadcasters sold $19.8 billion dollars worth of spectrum. Broadcasters made billions during the previous auction and spectrum has only become more valuable in 2024.

If you dig deep enough in the weeds, on June 17th, 2024, Brendan Carr hinted at a second spectrum auction. Should a second auction occur, broadcasters could bring in billions. I personally think the spectrum the TV companies have is worth multiples of the total enterprise value of the entire industry.

This is how I think everything plays out:

1. Brendan Carr becomes Chairman of the FCC

2. Carr removes legacy station caps and a massive rollup of the industry occurs - multiples expand

3. By 2026 another spectrum auction is announced and valuations go ballistic

4. There is a land grab for spectrum

5. By 2028 Elon Musk’s Starlink is worth trillions

How I am playing the spectrum land grab

I own Entravision and consider Nexstar a buy to play the spectrum and M&A rollup of the industry. Entravision is likely to be acquired. Nexstar is likely to do the acquiring. I am considering buying the other broadcasters too. TEGNA looks promising. They have low levels of debt and are returning significant sums of capital. Sinclair, E.W. Scripps and Gray Television are all over levered but if the M&A buying spree lights up from a station cap removal they will likely go up the highest given the debt.

All six of these companies own extremely valuable pockets of spectrum. Entravision sold $250 million dollars worth of spectrum in the last auction and they have a bunch of stations behind that which could be worth hundreds of millions. I will be writing up Entravision soon to provide a better analysis of the thesis. Stay tuned.

Overall, I think owning TV broadcasters now is strategic. They are all trading at basement level valuations. They generate significant globs of cash. And a new FCC chair could allow for the removal of stations caps and a potential spectrum auction. It is a new frontier. And TV broadcasters might have one last puff.

Disclosure: I am long Entravision Communications Corporation (NYSE:EVC) and will buy or sell my shares anytime following this article. This is not financial advice. I am not a financial advisor. Do your own research.