- Comcast cable technology resists cord cutting because it delivers superior Internet broadband speeds.
- Comcast is vertically integrated, owning many of the properties it sells through Universal and NBC.
- Comcast will be a buyer in the next wave of media consolidation, and Comcast stock will grow accordingly.
If you pushed me against a wall and demanded I pick a stock to buy for 2016, it would probably be Comcast -A (NASDAQ:CMCSA).
While most media stocks have had a terrible 2015, due to growing fears of U.S. consumers “cord-cutting,” getting their TV through the Internet rather than buying a bundle of cable channels, Comcast stock has gone merrily on, and it’s still a bargain.
What makes it powerful are vertical integration and financial strength. When people “cut the cord” on their cable bundles, they still keep the Internet broadband packages, which means they still keep Comcast. When Comcast buys Universal movies, or NBC cable shows for its network, it writes the check to itself, because it owns both of those properties. Comcast also owns the Universal amusement parks, meaning it has the same capacity to fully-monetize its properties that Walt Disney (NYSE:DIS) has.
Comcast didn’t have Star Wars but it had some movie properties that were nearly as good in 2015, including the Fast & Furious franchise, Jurassic World and Minions, the kind of movies that lend themselves to long-term exploitation as toys and rides.
Then there’s the financial strength. Assets of $158 billion, a market cap of $141 billion, a steady operating margin of well over 20% on sales that came in at $18.7 billion during the September quarter alone. This puts Comcast stock in great shape for the next stage of media consolidation, which has been widely-anticipated but should finally start happening next year.
Two words will drive that consolidation: Sumner Redstone. Redstone is 93, his health is failing, he has no obvious heir, and shareholders in the two media giants he controls – Viacom -B (NASDAQ:VIAB) and CBS (NYSE:CBS) – are going to be demanding a return. This is especially true in the case of Viacom, which owns the Paramount movie studio and such cable networks as Nickelodeon and Comedy Central.
The Viacom stock collapsed during 2015 – it could now be taken out for less than what the market valued it at in January, with a current Price/Earnings multiple below 6. Its line of assets could be a perfect bolt-on for Comcast, which would immediately profit from now having to pay it carriage fees, and given the weakness of the industry generally it would likely pass antitrust scrutiny.
Another possible target is Discovery Comm. -A (NASDAQ:DISCA). Its networks are weaker, but have a broader international footprint, and it has assets in education and online that Comcast, which is notoriously weak with its own Web sites, could take full advantage of. Comcast has already signaled a willingness to invest more in online by buying big stakes in Vox and Buzzfeed, two Web properties that have bucked the negative trend in the news business and earned growing, and popular, shares of that business over the last decade.
So the stage is set, and while you wait you still have Comcast stock selling at a not-unreasonable Price/Earnings multiple of under 18, which pays a dividend that currently yields 1.76%, and which you know is going to get through the cord-cutting era because Internet cords aren’t being cut. It is the kind of stock you can buy now and hold for five years, even 10 years, with confidence.