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Cable Stocks: Time to Look at the Big Picture

The following commentary is from an investment professional with Clear Harbor Asset Management who is a participant in TheStreet's expert contributor program.

NEW YORK (TheStreet) -- Cable stocks are often overlooked for a variety of reasons. For one thing, people tend to associate their cable provider with rising prices and bad customer service, and no one likes to get their monthly cable bill. Moreover, cable technology -- the big, ugly set top boxes, the annoying remote controls and the antiquated user interfaces -- is like a wet blanket in comparison to the warm and fuzzy feeling we get when using Apple's (AAPL) gadgets or Web sites like Amazon (AMZN), Google (GOOG) or Netflix (NFLX).

And what about cord-cutting -- the possibility that we could drop cable TV altogether and use online video sources for our information and entertainment needs? This threat has weighed on cable stocks and garnered widespread attention, but so far, it only seems to be happening on the margins -- particularly among young technophiles and penny-pinching types who don't watch sports.

Last week, I referred to cable's wire-line broadband business as its "ace in the hole," because even if consumers begin dropping video service en masse, it's highly likely that they'll continue to pay their local cable provider for broadband service. Good luck streaming online video and downloading rich media files without a high-speed wire-line broadband connection -- it's not very much fun.

If we're going to continue shelling out to cable companies every month, it makes sense to consider investing in them as well. From a user standpoint, they have some issues, but from an investor standpoint, these companies are extremely reliable cash flow juggernauts. They've held up nicely through recessions and competitive threats, and when the U.S. housing market finally bottoms and returns to growth, cable companies are poised to benefit.

My personal favorite is Time Warner Cable (TWC), mainly because it has no controlling shareholder and it owns cable systems in the all-important New York City and Los Angeles media markets. While the name "Time Warner" is often associated with the disastrous media merger with AOL at the height of the tech bubble, Time Warner Cable is actually a spin-off from the Time Warner (TWX) media empire. It's really a pure-play telecommunications, infrastructure business. It has a manageable debt load and its management has displayed a credible commitment to delivering for shareholders: consistently raising its dividend, which now yields 2.6%.

Comcast

Time Warner Cable also stands to benefit from Comcast's (CMCSA)) landmark acquisition of media conglomerate NBC Universal without shouldering the financial risks from such a deal. That acquisition gives Comcast, the nation's largest cable provider, a strong hand in trying to steer the digital media revolution in favor of its lucrative business model, which could indirectly benefit the entire industry.

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