Finance: Bye-Bye Bears

It’s comforting to know that the investment winds blow just as hot and cold this year as they have since traders first stood under the buttonwood tree at 68 Wall Street in 1792. This year, the long, cold winter for cable TV stocks ended on the eve of spring—March 13—with Comcast holding at a low of $26, just above its Jan. 3 bottom of $25.35. Its high was $32.31 on Aug. 15 last year. It was logical that investors would shun cable in the summer of 2002. But now Adelphia is being sold for nearly $17 billion and Cablevision has paid stockholders some $3 billion in dividends. Threats remain from satellite, powerline and telco competitors, but each of those has struggled with its own challenges. Strong first quarters in cable are not what the bears expected, which explains why more than half of Comcast’s three dozen biggest institutional shareholders were heavy sellers from January through March. General Electric Asset Management (+18 million shares), Dodge & Cox mutual funds (+8 million) and Vanguard funds (+5 million) were among those who wisely snapped up shares, according to Bloomberg data. What was it that sent the bears back into hibernation on March 13? A Bloomberg headline that day: "AT&T, Verizon See Little Payoff Yet From TV Spending." And Comcast’s buying Disney’s 40% of the E! channel (can’t buy all of Disney, so why not some?). Plus Brian Roberts, Larry Smith and John Alchin exercising options and keeping a few of the shares. And it was less than a month to the NCTA Convention in Atlanta, traditionally a good time to increase the cable portion of a stock portfolio. Although Comcast was on its way, the PK Cable Average didn’t stop fading until April 3 (at $20.28). Nor did it get a lot of help on April 25 when The Wall Street Journal gave Comcast a belated medal for recent and potential growth, and Cablevision paid a $10/share cash dividend. Then the Journal‘s sister weekly, Barron‘s, praised Comcast May 15 in a Brian Roberts interview. By the close, Comcast was $32.32, up 20.5% in two months. And the PK Avg. was up 11% from its low, at $22.51. From the 10/9/02 bottom through May 16, cable stocks outperformed eight of 15 PK media averages (see table). And that’s with no help from Time Warner, whose stock is pathetically overdue for recognition. At 11x cash flow, versus the previous 8-9 range, TW would be worth $24+ per share and Comcast $38-40. Stock prices are adjusting to renewed growth in basic and digital subscribers plus high-speed connections, but are not fully discounting growth in telephony and commercial customers, or the full potential of on-demand viewing. Media Stock Performance (10/9/02 to 5/16/06) Source: PK Worldmedia, Inc. Analyst/investor Paul Kagan is chairman/CEO of PK Worldmedia, Inc., in Carmel, Calif. He owns shares in Comcast, Time Warner and Cablevision, plus Rogers, Mediacom and General Comm., all of which are in the PK Cable Average. Information in his columns is not intended to be a solicitation to buy or sell securities.