Capitalize on the Negative Overreaction Towards ViacomCBS

Stocks to buy

Entertainment and media giant ViacomCBS (NASDAQ:VIAC) has been around for many years and has survived major industry changes. Yet, it felt like the end of the world when VIAC stock got dumped by investors in March of 2021.

A ViacomCBS (VIAC, VIACA) out front of a corporate building in Times Square.

Source: Jer123 /

Let’s not mince words: the investing community is prone to overreactions. Excessive enthusiasm can lead to melt-ups in stock prices, while undue pessimism can cause share prices to lurch too far to the downside.

It seems that this has happened recently with VIAC stock. And since the most recent move was a deep correction, contrarian investors should be ready to pounce.

When the market decides that it likes ViacomCBS again, the share-price rally could be powerful. So, let’s analyze what’s happened to the stock this year, with an eye towards where it might be headed next.

VIAC Stock at a Glance

Everything seemed fairly normal for VIAC stockholders when 2021 began – or at least as “normal” as things can be in the wake of the Covid-19 pandemic.

The point is that people were consuming entertainment media and ViacomCBS appeared to be in good shape as a company.

Then came a stock-price ramp-up of epic proportions. In hindsight, it’s fair to say that the rally was too much, too fast.

After starting off the year at around $36, VIAC stock catapulted all the way up to a 52-week high of $101.97, which was reached on March 22.

That was amazing, but not sustainable. Thus, the stock tumbled in late March and the first couple of weeks of April.

By the end of April, VIAC stock settled slightly above $41. A recovery to $60 isn’t an unreasonable goal, and should be attainable if the bulls can apply some buying pressure with elevated trading volumes.

Collateral Damage

A casual observer might think that ViacomCBS shares fell simply because they had gone up too much in early 2021.

Yet, the story isn’t as simple as that. InvestorPlace contributor Robert Lakin offered some explanations as to why investors dumped the stock.

First of all, Lakin cited the the over-saturation of the streaming industry. To put it another way, ViacomCBS faces competition from a number of steaming content providers that are vying for consumers’ attention.

There’s certainly some truth to that. Still, the existence of competition shouldn’t, by itself, warrant such a sharp and sudden drop in the VIAC stock price.

However, Lakin also cited ViacomCBS getting caught in the fallout from problems at private investment firm Archegos Capital Management.

Apparently, the sell-off in ViacomCBS shares was collateral damage as Archegos’ leveraged equity bets resulted in forced selling.

As Lakin explains, the share-price declines in VIAC and other stocks “prompted a margin call from one of Archegos’s prime brokers, prompting similar calls for cash from other banks.”

Locating the Dislocations

Contrarian investors can take it upon themselves to locate and capitalize on opportunities like this.

After all, the ViacomCBS share-price slide wasn’t due to some scandal among executives at ViacomCBS, or a report that the company isn’t generating any revenues.

Greg Taylor, chief investment officer at Purpose Investments, concisely summed up the value proposition that can arise in this unusual type of situation.

“Usually these dislocations where you get forced selling for non-fundamental reasons work out to be very good buying opportunities,” Taylor contended.

Wolfe Research analyst John Janedis seemed to echo this sentiment, claiming that ViacomCBS shares are now a buying opportunity.

That’s a fair assessment. It’s not every day that investors get to own shares of a media giant at such a reduced price point.

And while you’re waiting for the stock price to come back up, you can collect some cash payments as ViacomCBS offers a forward annual dividend yield of 2.34%.

The Takeaway

ViacomCBS was caught up in a nasty situation. Yet it doesn’t seem that the company itself was actually at fault.

Surely, investors should acknowledge this. But then, after a major overreaction, sometimes it takes a while before the investing community comes to its senses.

In the meantime, you have an opportunity to pick up some VIAC stock shares at a bargain price.

On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.

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