This past weekend, I noticed a kid walking through my neighborhood. He was probably in his 20s, and was slowly walking by random houses, glancing them over, and checking something in his hands. It seemed a little suspicious.

Being the slightly paranoid neighbor that I am, I stopped in my driveway and watched him for a bit. As he turned the block, I saw his shirt: “Mike for Texas.”

“Of course,” I thought. That figures.

If you live in one of the 14 states that vote on Super Tuesday (today), then chances are good you’ve seen something similar. You’ve probably also been bombarded with advertising over the past few weeks.

Flyers, mail brochures, you name it. None of this is really new, except for the web ads of course. That’s a more recent phenomenon. It’s just that the scale is bigger than ever before.

But here’s the one that really gets me. The damn TV ads. They’re everywhere. And it’s only going to get worse.

Political Ad Spending: By The Numbers

Politico estimates there will be $6 billion spent on political media in this election cycle. That will be the most spent in an election season, ever. According to their report on the 2019-2020 campaign cycle, that’s 57% more than from 2018-2020. For reference, election ad spending has grown an average of 27% per year since 2012.

About $1.6 billion of this cycle’s ad spend will be on digital formats. The rest will largely be spent on traditional media such as broadcast TV, cable, and radio. And here’s the thing you might find surprising…

Broadcast television will get $3.26 billion of the pie, compared to $2.52 billion in 2018. (For comparison, $1.73 billion was spent during the last presidential cycle.)

You read that right… broadcast television – that supposedly dying medium – will collect a historic level of political ad spending this election.

Political TV Ads Are Here To Stay

So what’s behind this surge? Close political observers may be tempted to blame the landmark Citizens United decision by the Supreme Court in 2010. That ruling struck down previous restrictions on campaign spending by third parties (often in the form of political action committees, or PACs).

And while that may certainly be responsible for part of the surge, the Politico report attributes most of the elevated spending to the campaigns themselves. In short, political campaigns have embraced modern technology and marketing tactics, enabling more precise targeting of potential voters. It’s also become a lot easier for small donors to give directly to their candidate of choice.

And if there’s one thing that still works in political campaigns… one thing that delivers more bang-for-your-buck than anything, it’s local television ads.

Some of us may sit back and lament the political ads invading our TV during this time of year. That’s fine. The role of money in politics is another discussion for another day. But here’s how you can profit from it…

How To Play This Trend

There are a number of smaller publicly-traded companies that own local broadcast television stations. My favorite to capitalize on this trend is Gray Television (NYSE: GTN).

Headquartered in Atlanta, Georgia, Gray owns and operates local television stations and digital properties in 93 television markets. Its properties were rated either first or second in 86 in their markets, which are mostly considered small and mid-size. Collectively, Gray reaches about 24 percent of households in the U.S.

Source: Gray TV investor presentation

The company has been active in the M&A space. In early 2019, it closed a $3.65 billion purchase of Raycom Media. This effectively doubled the size of the company, giving it exposure to new TV markets in the South. This helped propel GTN to record results for fiscal 2019, an off year in the campaign cycle. Here are some highlights…

– Revenue: $2.1 billion; a 96% increase from the previous year
– Free cash flow: $273 million; a 4% increase from 2018
– Fourth-quarter ad revenue: $38 million; well above the company’s guidance of $25-26 million

It’s worth noting that GTN is already showing signs of momentum due to a strong fourth-quarter 2019 finish (and an early uptick in political ad revenue). The company places a strong emphasis on reporting political ad spending in its quarterly and annual results. That’s how big a role it plays in the company’s growth and overall health.

Bringing It All Together

Look, nothing is for certain in this life. But a few things are pretty darn close. One is that this campaign season is going to be frenzied and nasty. Another is that people still like their local news and weather.

Most national polls have the presidential race within a 5% margin or less. And there are 469 seats up for grabs between the U.S. House of Representatives and Senate. Ask any campaign manager, and they’ll tell you. Having boots on the ground knocking on doors is great, but nothing beats advertising on local TV. It’s relatively cheap, it reaches tens of thousands, and it motivates voters to go to the polls. You may not like it, but it works.

For 2020, GTN expects between $250 million and $275 million in political revenue. And analysts expect all that cash coming in will propel the company to about $3 per share in earnings. Don’t be surprised if either of these figures surprise on the upside. Meanwhile, GTN shares look cheap at a forward price-to-earnings ratio of about 7 and an EV/EBITDA of about 8.5.

If you’re looking for a smaller, undervalued stock to benefit from election season, then GTN is the way to go. Competitors Salem Media Group (Nasdaq: SALM) or EW Scripps (NYSE: SSP) are also options worth considering while you’re at it.

Editor’s Note: Broadcast TV may be home to the political ad wars, but we’ve all heard about the other media war – the one everyone already knows about…

I’m talking, of course, about the streaming wars between Netflix, Amazon, Apple, and many, many others for control of your living room.

But what you may not know is that it’s about to get bloody… But we have the inside scoop on who will come out on top. And there’s one quick trade you MUST make soon in order to make a killing. Go here for the details…