Cable stocks have suffered for the last few years. The cord-cutting trend brought about by low-cost streaming services such as Netflix (NASDAQ:NFLX) have decimated cable TV. This also further served to blur the line between traditional cable television and internet video. As a result, many viewers have chosen to watch videos posted on sites such as Alphabet’s (NASDAQ:GOOGL, NASDAQ:GOOG) video platform YouTube.
Cable stocks have fought back, however, primarily by embracing the technology that destroyed their former business model. This works because they still own the physical infrastructure that makes streaming video possible. In many cases, they have also spent billions of dollars to upgrade infrastructure. Some have also spent additional money to create or control more proprietary content. Through this power, they can not only hold control of television and video, but they can also leverage an increased focus on exclusive content to retain many of their customers.
The following four stocks to buy have made the strategic moves necessary to both deliver this content and revive long-suffering cable stocks:
AT&T, Inc. (T)
Few cable stocks define both the cord-cutting trend and the recovery from it better than AT&T (NYSE:T). The company spent much of the previous decade laying fiber to provide faster internet and support its TV service. While that infrastructure did not offer as much TV revenue growth as it had hoped, it still provides millions with the internet service necessary for streaming.
Moreover, in this decade, it has spent tens of billions to upgrade its wireless service to the much faster 5G technology. This move will give T stock the side benefit of providing video streaming to tens of millions of wireless devices. Furthermore, it finally closed its deal to take over Time Warner. This includes ownership of HBO, the cable movie provider that had moved into streaming video and proprietary content.
These changes and investments have hurt T stock in previous quarters. Now, I believe they will bolster its recovery.
AT&T currently supports a price-earnings (P/E) ratio of 5.6. Moreover, the reduced stock price has taken the dividend yield to about 6.7%. Furthermore, the value of T stock depends heavily on its dividend aristocrat status. Hence, AT&T will more than likely increase its $2 per share dividend for next year. With its low-cost, high-cash payout and its critical role in delivering content, AT&T should become one of the more lucrative cable TV stocks.
Comcast Corporation (CMCSA)
Comcast (NASDAQ:CMCSA) provides both television and broadband internet to millions of customers across the country. Also, it plays a significant role in delivering content through its ownership of both NBCUniversal and Sky. The stock has suffered this year amid antitrust accusations. Its NBC division has also received blowback from President Donald Trump as it faces allegations from the president that the network provides “fake news.”
However, such challenges almost always become buying opportunities. Moreover, despite the cord-cutting trend, Comcast has not suffered as much as other cable stocks. CMCSA stock managed to maintain a double-digit growth rate over the last five years. And analysts expect growth rates to continue to increase at double-digit rates for the long term. They forecast net income will grow by 23.8% this year and 18.4% over the next five years.
Investors have seemingly not noticed CMCSA stock. Comcast trades at a P/E ratio of only about 7. In each of the last five years, it has maintained a P/E in the high-teens or low 20s. Also, its dividend of 76 cents per share yields almost 2%. Although consistent with current S&P 500 dividend yields, it has increased in each of the last seven years.
Due to its lower multiple and continued growth, I think its profit growth will make it one of the profitable cable stocks over the long term.
Verizon Communications, Inc. (VZ)
Admittedly, the case for Verizon (NYSE:VZ) stock largely mirrors that of its most direct peer, AT&T. Like AT&T, it owns an extensive fiber infrastructure that saw revenue decline with Verizon Fios customers when cord-cutting became widespread. It also had to spend tens of billions of dollars to build a 5G wireless network across the U.S. Unlike AT&T, it has not purchased as much content. However, it formed Oath out of its combined acquisitions of AOL and Yahoo!
Fortunately, the competitive challenges and infrastructure spending have now formed a basis for new growth. Best of all, the stock may have broken out of its trading range where it has remained since 2013. As it approaches $61 per share, VZ now approaches the record highs its first achieved during the 1990s tech bubble.
This time, investors will pay a lower multiple for those highs. VZ stock trades at a P/E ratio of 7.6. It also pays a dividend of $2.41 per share. This takes the yield to around 4%. Also, the payout will likely grow as the VZ stock dividend has risen every year since 2007. With this updated wireline and wireless infrastructure, Verizon will continue to bring media to investors and profits to its stockholders.
Viacom, Inc. (VIA, VIAB)
Viacom (NASDAQ:VIA, NASDAQ:VIAB) stock has lost over half of its value since 2013. Viacom owns channels such as Nickelodeon, MTV, Comedy Central, Spike TV and other properties. Its fortunes plummeted as customers cut the cord and investors dropped cable TV stocks.
However, many of these channels now draw viewers from streaming services such as Sling, and it has also partnered with Netflix. As a result, ratings have again begun to rise. Moreover, with the ownership of these channels, it owns a large amount of content that could make VIA stock an acquisition target.
The case for a buyout becomes stronger with its low multiple and renewed growth. Even when comparing the more richly valued VIA shares (VIAB shares do not include voting rights), the stock holds a P/E ratio of just over eight. Also, due to the ratings increases VIA again enjoys, forecasted profit growth of near-25% this year.
Moreover, investors also receive a dividend of 80 cents per share. This amounts to a yield of over 2.2% while they wait for either a stock price recovery or a buyout. Considering the hunger for content and the low valuation, I see VIA stock moving higher, whether it ends up as a buy or a buyout.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.
