Buying the Dip: Why MSGE's Russell Exclusion Hides a Contrarian Gem

The Russell Small Cap Value Index removal of Madison Square Garden Entertainment Corp (MSGE) this June is a prime example of the market's short-term myopia. While the index's annual housecleaning often creates dislocations, this one has left a $2.8 billion entertainment giant trading at a 40% discount to its intrinsic value. Let me explain why this is a once-in-a-cycle opportunity for contrarians—and why I'm buying now.

The Contrarian Play: Why MSGE Got the Boot—and Why It Doesn't Matter

The Russell Small Cap Value Index is a rules-based machine. Its June 2025 reconstitution (effective June 30) removed MSGE because its market cap breached the $4.6 billion cutoff for the Russell 1000, pushing it into the mid-cap category. But here's the rub: valuation ≠ value. While the index's algorithm focuses on size, MSGE's fundamentals remain rock-solid. Its live events, venue operations, and media assets generate $1.2 billion in annual cash flow, up 18% from 2024. Yet its stock has plummeted 30% since January as passive funds liquidated to comply with index rules.

The Mispricing: Cash Flow King in a Volatility Storm

• Stable Earnings Machine: MSGE's Q1 2025 results showed 22% revenue growth, with its iconic venues (including Barclays Center and Hulu Theater) operating at 95% capacity. Its media division, MSG Networks, delivers recurring revenue with 90% gross margins.
• Debt Under Control: Unlike Bloom Energy (BE), which carried $2 billion in liabilities, MSGE's debt-to-EBITDA ratio is a conservative 2.8x. Its $800 million cash pile can fund growth without dilution.
• Structural Tailwinds: Post-pandemic live event demand is surging. Ticket sales for 2025 festivals and concerts are up 35% year-over-year, yet MSGE's stock remains stuck in a “small-cap value” liquidity crunch.

Hedge Funds Are Already Loading Up

Third Avenue Management and Pershing Square Capital—names that thrive on mispricings—have quietly increased stakes in MSGE since April. Their buying is no accident: They see a company where every dollar of earnings is generated from real, recurring revenue (not speculative tech or green energy bets). This isn't a “value trap”; it's a cash-generating powerhouse caught in an index-related liquidity squeeze.

The Setup for a Rebound

The Russell exodus isn't permanent. By 2026, MSGE's mid-cap status will likely land it in the Russell Mid-Cap Value Index, attracting new inflows. But here's the kicker: active managers are already sniffing around. With the stock at 12x forward earnings (vs. 20x for peer Live Nation), the upside is asymmetric. Even a reversion to 15x would boost the stock by 25%—and that's before factoring in its untapped growth in esports and digital content.

Buy Now—Before the Smart Money Wins

This is a textbook contrarian setup. The forced selling from passive funds has created a buying opportunity that won't last. Here's how to play it:
1. Dip Buyers: Use the next pullback below $45 as an entry point.
2. Set a Target: Aim for $65-$70 within 12 months—a 50%+ gain if cash flow multiples normalize.
3. Hedged Position: Pair MSGE with a small put option to protect against Russell-related volatility.

The Russell's rules are cold and unforgiving, but smart investors know: exclusions are where fortunes are made. MSGE's fundamentals haven't changed—it's still the premier live entertainment operator in the U.S. The only thing missing now is passive money. And when that rotates back in, this stock will roar.

Action Plan: Buy 100 shares at $45. Set a stop at $38. Let the index exodus work for you.

Disclosure: The author holds no position in MSGE at the time of writing, but may initiate one shortly.