Why Comcast Stock Is a Surprisingly Solid Long-Term Bet

Advertisement

A common fixture in the entertainment landscape, Comcast (NASDAQ:CMCSA) faced one of its biggest tests in company history due to the novel coronavirus pandemic. Although the company offers much-needed services like internet and mobile connectivity, the immediate panic saw investors running for the exits. Thus, CMCSA stock fell sharply in March, as did so many other publicly traded companies.

Image of the Comcast (CMCSA) logo on the back of a white van in a rural area

Source: Todd A. Merport / Shutterstock.com

Primarily, the virus imposed unprecedented pressure on its broader entertainment-based businesses. As the Wall Street Journal pointed out, Comcast suffered steep losses as millions of cable TV subscribers in the U.S. either cancelled or suspended services. Among them were high-profile clients, such as hotels, bars and restaurants.

Without customers, there simply wasn’t a need to keep paying for suddenly useless services. Thus, the initial meltdown in CMCSA stock was severe.

Pouring salt on open wounds was the rise of streaming company Netflix (NASDAQ:NFLX). Although NFLX stock also took a hit in March, it quickly skyrocketed. At time of writing, shares are up nearly 50%. In contrast, Comcast is down more than 5%.

Interestingly, though, CMCSA stock has enjoyed a decent run since early April. At the time, contrarians gambled that the outbreak will eventually fade. As infection rates began declining, combined with surprisingly robust economic data, the stock continued to march higher.

However, that could come to a halt and eventually reverse. Currently, the mainstream media headlines are filled with gloomy reports about record-breaking daily coronavirus cases across several states. Moreover, economic uncertainty exists as federal unemployment assistance will expire, barring government intervention. So, we shouldn’t be surprised if Comcast’s stock goes volatile.

If it does, though, investors should adopt a longer-term approach and buy the discount. Here’s why.

Adjustments Without the Panic Will Help CMCSA Stock

Much of the reason why we saw a quick implosion in March was due to the extreme fear of the coronavirus. While there’s still a lot we don’t know about the virus, we knew next to nothing when it first struck us. This explains why government recommendations about mitigation efforts were initially so confusing.

Yes, health concerns still exist today. What has changed — and this is a crucial point — is that we’ve gained experience on adapting to this reality. In fact, we have a term for it — the new normal.

Thus, while it’s very possible that CMCSA stock can falter on doom and gloom headlines, I don’t expect a jaw-dropping decline. Rather, we may see a significant but ultimately modest (in the grand scheme of things) correction. After all, we’ve already been through the first round of the crisis. Going through another round is less of a big deal. And that should give you confidence in buying CMCSA on the dips.

Another catalyst? Fundamentally, the stock is set up well for a pandemic. With more people either voluntarily or involuntarily sitting at home, Comcast serves two needs — entertaining subscribers who are bored out of their minds and providing quick, reliable internet service.

When we initially flattened the infection curve, many companies were likely thinking about bringing their employees back to the office. Unfortunately, in several states, that may not be an option due to health risks and governmental mandates. Therefore, it’s incumbent that currently remote workers have the best internet setup.

Essentially, Comcast has a free marketing opportunity to steal market share. Through its vast corporate synergies, they can offer subscription packages that many rivals can’t match.

Cable TV Isn’t Completely Irrelevant

Should the pandemic worsen, many stakeholders may dump Comcast due to worries that professional sports leagues may cancel their reopening. As you know, one of the few selling points of traditional cable TV subscriptions is live sports viewership.

So far, no major sports league has announced plans to scrap their 2020 season. But it’s possible that investors could react ahead of the news — that’s what speculators do.

If that happens, though, patient investors would do well to buy into the weakness. If leagues resume play, pent-up demand will drive up CMCSA stock, especially if restaurants and bars reopen ahead of the NFL season. But even if sports are cancelled until the 2021 season, it’s still good news for long-term investors; the pent-up demand will be much greater.

Eventually, society will return to its pre-pandemic normal. When it does, Comcast’s other revenue sources, such as movie franchises and theme parks, will come back online. Therefore, any discount you can grab during this crisis should pay off down the line.

Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. Click here to see what Matt has up his sleeve now. As of this writing, Matt did not hold a position in any of the aforementioned securities. 


Article printed from InvestorPlace Media, https://investorplace.com/moneywire/2020/07/why-cmcsa-stock-is-a-surprisingly-solid-long-term-bet/.

©2024 InvestorPlace Media, LLC