Pessimism took a break over the holidays, but it's finally time to take another stock outside for a good beatdown. Every week, I single out a stock that appears heading for trouble, then suggest three stocks to replace the potentially perilous pick.
Who gets tossed out this week? Come on down, Comcast (Nasdaq: CMCSA ) .
The rube tube
Cable companies have typically been resilient during market downturns. No matter how bad things get, couch potatoes still need their entertainment. Who would dream of axing their cable bill, right?
Wall Street is certainly buying into that thesis. Despite the crummy economy, analysts see Comcast's earnings climbing 16% in 2009 to $1.04 a share, with revenue taking a 6% step up to $36 billion. In other words, Mr. Market is not only convinced that Comcast will grow this year, but also believes that it will widen its margins.
I disagree. Cable bills are not insignificant. Each month, entertainment subscriptions like Netflix (Nasdaq: NFLX ) and Sirius XM Radio (Nasdaq: SIRI ) will set you back $17 and $13, respectively -- a small sacrifice that can be justified. But even basic cable will run you several times the cost of a satellite radio subscription. And don't get me started on expanded packages and premium channels.
Cash-strapped patrons will downgrade their monthly plans -- curbing their expenditures on Curb Your Enthusiasm, thinning out their Entourage, and giving Dexter the axe.
If you doubt this coming tide of downgrades, ask yourself why nearly every television or set-top box maker at this month's Consumer Electronics Show was touting new broadband connections between their devices and online video sites. Now that most of the major networks are digitally serving up free ad-supported versions of their television programs, consumers' ability to directly pipe those shows into their sets will make cable giants like Comcast less relevant.
Sure, Comcast is also an Internet access provider -- with nearly 15 million accounts, compared to 24 million cable subscribers -- but that is a cutthroat industry. Now that even the FCC is onboard to create free -- or nearly free -- widespread broadband connectivity, the company's days serving up broadband may be numbered there as well.
This could have been a big year for Comcast. The forced conversion to digital television leaves old-school viewers little choice but to buy a new TV, pony up for a subsidized converter box, or subscribe to cable. However, now that popular shows are cutting out the middleman, and consumers are cutting out unnecessary expenditures, do you really think Comcast will grow in 2009?
Good news
As I do every week, I don't talk down a stock unless I have three alternatives that I believe will outperform the company getting the heave-ho. Let's go over the three fill-ins.
- Netflix - The DVD-rental-by-mail giant has been a longtime alternative to driving out to the retail video store or heading out to the multiplex for fresher fare. Now that its online streaming service -- provided to existing subscribers at no additional cost, and available directly into home-theater systems through existing appliances like TiVo (Nasdaq: TIVO ) DVRs and Microsoft (Nasdaq: MSFT ) Xbox consoles -- is gaining traction, it's going to be one of the many nails in the coffin of cable providers.
- Google (Nasdaq: GOOG ) - The parent company of YouTube should also make out nicely. Given the choice between scrapping cable or the Internet, most wired consumers will choose connectivity, and just consume more YouTube videos. comScore's latest traffic data already shows that domestic audiences viewed 12.7 billion online videos in November, a 34% gain from a year earlier. Google's 40% slice of the market is more than 10 times greater than its nearest rival. In other words, the master of online advertising will soon be the leading platform for video viewing, too.
- Blockbuster (NYSE: BBI ) - If more consumers kill off their cable bills during the recessionary lull, the attractiveness of piecemeal rentals will be more obvious. If so, Blockbuster is there. There may cheaper real-world solutions like Redbox, but Blockbuster has a decent cross-section of in-store titles and online subscription plans. Video-game rentals should also thrive as die-hard gamers scale back on their own purchases.
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