The conventional view is that cable companies are toast. The rise of on-demand, advertisement-free and low-fee streaming services is putting an end to traditional TV. Each new streaming service puts another nail in the coffin of cable stocks and further depresses their share prices. And the novel coronavirus has only served to hasten this seemingly inevitable trend.
But not so fast! To paraphrase Mark Twain, reports of the death of cable are greatly exaggerated.
Market analysis by Grand View Research found that, contrary to the popular narrative, the global broadcasting and cable television market continues to grow. This market was valued at $305 billion in 2019 — and it is forecast to expand at a compound annual growth rate (CAGR) of 3.4% between 2020 and 2027.
Increased competition from streaming services is causing cable companies to ramp up their efforts to capture market share. They are diversifying their services and offering innovative new products. In other words, cable companies are adapting to survive and thrive.
With that in mind, here are four cable stocks that will survive the pain.
- Comcast (NASDAQ:CMCSA)
- AT&T (NYSE:T)
- Charter Communications (NASDAQ:CHTR)
- Dish Network (NASDAQ:DISH)
Cable Stocks: Comcast (CMCSA)
Source: Ken Wolter / Shutterstock.com
Let us begin with a traditional cable company that is having success with an innovative streaming service.
In April, at the height of the global pandemic, Comcast launched a new streaming service called Peacock through its NBCUniversal division. Peacock primarily offers NBC programs from the past and present, as well as movies from Paramount Pictures. However, Peacock is unique in that it does not charge a monthly subscription fee. As its robust ad campaign makes clear, consumers can stream content on Peacock for free.
But how does this work? Comcast makes money on the venture through advertisements, which pop up occasionally like on YouTube. This approach has proven to be a big success and Comcast reported that, as of July, Peacock had signed up 10 million people. The company forecasts that Peacock will have 30 million to 35 million monthly active accounts by 2024.
The largest cable TV company and home internet service provider in the U.S. has several other things going for it too. Comcast has been pushing its Xfinity internet service to grade schools and universities as they prepare for the upcoming school year, offering several deals to help grow subscriptions. The company is also super diversified and has its hands in everything from theme parks to movie studios and even a mobile phone venture. This means that, while Comcast is the biggest cable television provider in America, it is not solely dependent on cable for its future. This is a company that has the resources and diversification needed to continue adapting and weather the current economic storm.
CMCSA stock has been recovering nicely in recent months and is up 30% from its March low. Shares are currently trading for $43. The consensus view of analysts is to buy Comcast stock, and there is a median price target of $49 a share.
Source: Jonathan Weiss/Shutterstock
AT&T traces its roots back to Alexander Graham Bell and the invention of the telephone in the late 1800s. Over the decades, the company has evolved. Now it is the largest telecommunications firm in the world. And, through its ownership of WarnerMedia, it is also the largest media and entertainment company in terms of revenue.
Thankfully, AT&T is not stuck in the past. It continues to reinvent itself and remain resilient.
To be sure, streaming services have hurt AT&T’s pay TV business, which has lost one-fifth of its subscribers in the past year. Pay platforms such as DirecTV are getting clobbered by services such as Netflix (NASDAQ:NFLX). However, AT&T is not backing down.
Since acquiring WarnerMedia in 2018, AT&T has launched the new HBO Max streaming service. It has also rid itself of redundant services such as HBO Go and Watch TV, and hired Hulu’s former boss to unify its streaming efforts. Plus, AT&T has put a premium on content. Not only does the company control HBO’s catalog of popular and award-winning shows, it has also secured the rights to hit shows such as Friends and The Big Bang Theory for its own streaming purposes.
AT&T stock looks cheap at its current price of just under $30 per share. Plus, T stock is a dividend aristocrat. The company offers a 7% dividend yield and has increased its dividend every year for more than 25 years.
Cable Stocks: Charter Communications (CHTR)
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Charter Communications is a favorite of legendary investor Warren Buffett, whose Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B) owns CHTR stock. What makes the Connecticut-based company so popular among experienced and successful investors?
For starters, it is the second-largest cable operator in the United States by subscribers after Comcast. Because of this, it benefits from live sports, with MLB, NBA and NFL games driving subscriptions.
Second, Charter benefits from local advertising, which continues to rise. The company announced that net new customer additions grew from 203,000 in the year-ago quarter to 753,000 in Q2 2020. Charter Communications is also seeing an acceleration in profits and free cash flow following the successful integration of Time Warner Cable and Bright House Networks, which it purchased in 2016.
CHTR stock rose nearly 14% in July and is up 25% year-to-date at $610 a share. Analysts expect the stock to reach $650 a share or higher in the coming 12 months and have a buy rating on it.
Clearly, Mr. Buffett knows a thing or two about picking good stocks.
Dish Network (DISH)
Source: Jonathan Weiss / Shutterstock.com
Dish Network is a direct broadcast satellite television provider. And the company’s stock has been on a tear in recent months. DISH stock has more than doubled from a March low of $18 a share. While the stock has pulled back to around $34 recently, many analysts are forecasting that the stock will breach $40 per share in the near term.
DISH stock’s rise has been due largely to its diversification into mobile wireless markets. The company completed its acquisition of Boost Mobile on July 1, which officially marks Dish’s entry into the wireless retail market. DISH is now focused on rolling out an ambitious 5G wireless plan. After investing $11 billion to acquire wireless spectrum licenses and related assets, the company says it will cover 70% of the U.S. population with wireless service by mid-2023.
While Dish is losing TV customers (the company lost 40,000 paid TV subscribers in the second quarter), the pace of cord cutting has slowed, and the move into wireless should help to underpin the TV side of the business going forward. DISH stock currently carries a buy rating from analysts.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia. As of this writing, Joel Baglole owned BRK.B stock.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.