Like every other stock in America, Comcast (NASDAQ:CMCSA) has gotten the coronavirus blues. Down 15.2% year to date (including dividends) through March 11, Comcast stock could be a tempting buy for some investors.
Should you pull the trigger? Well, I don’t have a particular answer for you at this stage of the game.
However, it’s not hard to imagine the markets continuing to fall now that a bear market has arrived. CNBC’s analysis shows the average bear market lasts around 13 months. If that’s true, you’re not likely to be able to fight the trend, with Comcast, or most other large-cap stocks for that matter.
That said, I’m not suggesting you stay in cash for the next year and three months; instead, I think you need to consider alternatives that expose you to less risk. To buy Comcast stock in a bubble, as if no other stock exists, would be silly. By merely adding a second, large-cap stock to your portfolio, you cut your company-specific risk by 50%. Add a third, and you cut it some more. And so on.
As I write this, the Dow is down another 2,000 points and Comcast is down 4% — let me quickly give you a quick synopsis of buy and sell recommendations for Comcast from two InvestorPlace contributors.
You Should Sell Comcast Stock
InvestorPlace’s Larry Ramer recently suggested that cord-cutting headwinds make Comcast increasingly vulnerable.
Interestingly, Larry didn’t mention the hit the company’s amusement parks will take. In Asia, Universal Studios Japan shut down for two weeks. It was expected to reopen on March 16. Now that the World Health Organization has called the coronavirus a global pandemic, the closure may go longer.
Here in the U.S., it’s only getting started. The coronavirus is going to get a lot worse before it gets better. That means lower revenues at its U.S. parks and resorts.
As for my colleague, he believes that given Comcast’s video and NBC businesses are weakening due to cord-cutting, investors should sell its stock. Add in the revenue shortfall from its parks business and things don’t look promising in the near term.
Buy on the Dip
Matt McCall and the crack InvestorPlace research staff suggested March 5 that Comcast stock was an opportunity on the dip. In fairness to them, no one could have predicted the market decline that came shortly after that, but here we are.
Still, a couple of their points remain valid reasons why you might consider buying Comcast at this point.
For example, McCall and company point out that nothing’s changed in Comcast’s overall story. It was a great buy in the telecom industry before this 20%+ correction. And now it’s an even better buy.
While Ramer would disagree with this assessment, the general sentiment that Comcast remains a good buy within the telecom and media industries is not a unique one. For every negative due to revenue losses from the coronavirus, analysts argue a business such as Comcast’s may benefit from people staying home and using some of its products and services.
“The Cable Communications segment (comprised of both cable and Internet services) drives over two-thirds of profits. It might get some help in this environment. Comcast customers may well delay or reverse decisions to “cut the cord.” They could upgrade their Internet to improve their streaming experience,” McCall wrote March 5.
Also, he points out that Comcast’s theme park business accounts for just 7% of its overall revenue. It’s a blip. Nothing more.
Trading at 13x 2020 consensus earnings per share, McCall believes Comcast stock is reasonably valued at this point.
The Alternative Buy
The last time I wrote about Comcast was last August. At the time, I regarded CMCSA as a good value buy, but felt investors should hold back some cash to buy when the next big correction happens.
Well, that correction is here. It’s down about 16% since the end of August. However, it’s got another 15% drop to get down into the low $30s where I suggested buying some more.
Unfortunately, with the world on high alert, it’s impossible to know if Comcast is going to return to the $40s anytime soon.
Therefore, if you like its stock but are unsure about buying it outright, you ought to consider the iShares Evolved U.S. Media and Entertainment ETF (NYSEARCA:IEME), an actively-managed ETF that only charges 0.18%.
IEME’s top holding is Comcast, with a weighting of 6.84%. The ETF utilizes artificial intelligence to select stocks for its portfolio; it is an inexpensive way to gain exposure to Comcast while maintaining a modicum of diversification. Netflix (NASDAQ:NFLX) and Disney (NYSE:DIS) are also in the top 10 along with a couple of video game companies.
If people stay home in droves, TV-related businesses ought to do well.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
