Cable is also winning back customers who defected to satellite services by improving its core television product. In recent years cable operators have started offering TiVo-like recorders built into their set-top boxes, and cool new features like "start over" from Time Warner Cable, which lets customers rewind to the start of any show as long as they've tuned in before the program ends. (Time Warner Cable, like Fortune and CNNMoney.com, is a unit of media conglomerate Time Warner.)
Not that the telcos are giving up. Verizon and AT&T both have announced ambitious plans to replace their traditional networks with fiber to deliver even faster Internet access and high-definition television services. "Telecom competition is real, and it is coming," says UBS analyst Aryeh Bourkoff. "But our view is that the 2006-to-2008 time frame is cable's window."
Indeed, the big cable operators are healthier than they've ever been. And while many of the stocks have been climbing, if you look carefully, there are still some attractive opportunities. Here's a rundown.
Comcast Lewis J. Altfest, president of New York City investment advisory firm Altfest & Co., is recommending Comcast (Charts) (CMCSA, $38) to his clients, despite the fact that the shares have jumped 46 percent since their March low. Comcast took longer than most of its peers to build the advanced systems needed to deliver calls. As a result, only one million of its 22 million cable subscribers buy their dial tone from Comcast.
Now the company is ramping up marketing of the service, and Craig Moffett of Bernstein Research believes Comcast could provide more than 25 percent of its customers with phone service by 2010. Today Comcast trades at about nine times estimated 2006 cash flow - well below its peak of about 21 times cash flow.
Applying today's low multiple to her 2007 cash flow estimates for the company, prominent media analyst Jessica Reif Cohen of Merrill Lynch in early October raised her price target on Comcast stock to $45 a share.
Liberty Global Joe Wolf, co-manager of the RS Value Fund, likes Liberty Global (Charts) (LBTYA, $26), in which cable pioneer John Malone is the largest individual shareholder. Wolf likes Liberty's geographic reach - its 13 million subscribers are in markets as diverse as Switzerland, Chile and Japan. And he says that Liberty is still at the very early stages of selling add-on services to its international customers.
But what Wolf, whose firm owns eight million shares of the stock, really likes is the cable operator's return on invested capital: Much of Liberty Global's cable plant has already been upgraded, so its capital spending goes mostly to high-return incremental expenditures, like set-top boxes for new digital customers. "We've been involved with this company for many years, and this is as attractive a risk-reward story as it was when we bought our first share," he says.
Charter Communications While the industry is dominated by large operators, there are some intriguing smaller players, including St. Louis-based Charter Communications (Charts) (CHTR, $1.68), which counts Microsoft co-founder Paul Allen as its largest individual shareholder.
The stock has been in free fall almost since its 1999 public offering (notice the sub-$2 share price) as the ambitious operator issued mounds of debt to fund its expansion plans; its market value is just over $700 million.
Because of its debt payments, Charter is not profitable, nor does it generate free cash. But Charter recently posted better-than-expected revenue in the second quarter, and the company says that it is getting ready to push its high-speed data and phone services to its 5.9 million cable customers in earnest. The company's bonds have been trading at much higher levels, notes UBS analyst Bourkoff, who believes that the stock could follow suit.