In this economic environment I think it's particularly important to point to companies that are bucking the trend and those Wall Street analysts have shined their spotlight on. This week Bernstein published its "Best of Bernstein" stock picks for the next six to twelve months.
Bernstein's top pick in Telecom, Cable & Satellite is Time Warner Cable . Bernstein's argument: TWC has outperformed the market year-to-date and over the past 12 months.
Time Warner Cable's key distinguishing factor -- it's trading at a discount to Comcast based on a number of metrics, including p/e multiple, and both Comcast and TWC are exposed to the same economic factors, like the housing market (Cable companies see a boost from people moving into new houses, and vice versa). Comcast's stock has benefited from the fact that the company is bringing back the dividend it dropped in 1999, now paying out 25 cents annually, and from its announcement that it will buy back some $7 billion in stock by the end of 2009. But Time Warner Cable shareholders will get a dividend of their own: a $10.27 one time payment before the end of the year.
TWC does face some real challenges in this environment. It's going to be hard to add subscribers, or get subscribers to upgrade to more expensive packages. And it seems the competition is tougher than ever, with AT&T'sU-Verse and Verizon'sFIOS slowly getting into the space, Verizon aiming to take on TWC in the key New York market. And though the credit markets raise concerns about the company's ability to find cash for the dividend payment, the company has already secured financing for half of it, and the company says it has a consortium banks planning to fund the rest.
The good news- TWC managed to score a net addition of 896,000 subscribers in the first quarter and another 656,000 in the second quarter. Not bad for a slow economy, and subscribers, once they've signed up for cable service are unlikely to drop the service and there's usually little incentive to switch. And the transition to digital television coming in February (the end of analog television) should be good for Time Warner Cable and the rest of the cable industry. It's better for cable than its satellite TV competitors because cable tends to be lower cost. The company seems to be on track, we'll see if it can continue to outperform the Dow.
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