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AT&T, Comcast Now Poised to Prosper, by James Cramer
This column was originally published on
on Oct. 24 at 9:41 a.m. EDT.
The national consolidation and rationalization of industries coupled with the slowdown in housing has produced some odd moves, but none more odd than the ascension of AT&T and Comcast into the sainted pantheon.
Look at these two stocks. Have they had a week where they have not rolled higher? For a half-decade we heard about how they were killing each other and that there was no end to the wars. We heard that they were going to kill each other's margins and businesses and that the telco-cable wars would leave both drubbed and bedraggled.
Instead, they hit 52-week highs over and over again. How did this happen?
First, it's true that the capital goods denouement is playing out right now. The run in the capital goods stocks seems to be over, and in its place are steady slow growers like Comcast and AT&T.
Second, these companies have bought back tremendous amounts of stock. But that's a factor many other companies share.
Third, the consolidation in both industries, cable and telephone, has led to a more benign pricing environment. Comcast can offer a triple-play (cable TV, phone, Internet) that is lucrative. AT&T-Cingular can offer a cell-phone play that is actually, for once, in great shape for profitability now that there are only a handful of cell-phone players and
imploding before our eyes.
There's not that much left to buy, so the companies aren't going to do more acquisitions. Comcast stole Adelphia because the morons there bankrupted a perfectly good cable company. There's no cable left to buy until
goes bankrupt. AT&T was allowed to buy
to eliminate its biggest competitor.
bought price-cutter WorldCom, too.
People were worried about
, but that turned out to be a company that was spending outrageous sums to pump up subscribers in order to have a successful IPO, which was very successful for the company, albeit very unsuccessful for the shareholders -- many of whom were also subscribers. People were also concerned about Skype, and while Skype can take hold, it's the untethered cell phone that people love, with all its bells and whistles and cameras and ringtones and texting, the latter quickly becoming a national obsession. Don't forget that the exploding growth in
Research In Motion
helps these companies, too.
Comcast is now able to add all of these high-end features seamlessly at a time when the dish -- that is,
-- can't. Other than the NFL package, the dish has been left behind.
In another year, lots of onerous cable carriage deals from the 1990s will roll off and further increase Comcast's margins. It's a great story. So is an emboldened AT&T with plenty of staff cuts ahead for BellSouth -- heck, maybe everyone will go! -- plus that juicy dividend and buyback.
These stocks have come a long way. But they have essentially sat out the last 10 years as they bought and bought and bought and competed and competed and competed and missed numbers and missed numbers and failed to grow. That's all past.
They go higher.
At the time of publication, Cramer had no positions in the stocks mentioned.
Cable: A Bet Against the Revolution, by Cody Willard
This is an expanded version of a column originally published on
on Oct. 24 at 11:57 a.m. EDT.
In his blog today, Jim Cramer
are poised to prosper. I disagree.
I believe both companies face secular declines in their core businesses. That secular decline has nothing to do with the competition between these two dinosaurs and their respective industries. No, it's never been about telco vs. cable. It's about broadcast vs. on-demand from the Internet.
The Internet's ability to distribute content on demand will completely disrupt the pricing paradigm in video distribution. Think about it this way: Cable companies like to talk about "bundling" -- that "triple play" concept in which voice, video and Internet are all on one bill -- as a positive for their customers. They actually have the nerve to call getting that stuff bundled together on one bill a "convenience." Hah! You know what I'd find convenient? To stop paying out the nose for a bundle of garbage that I'll never bother watching.
Cable companies sell me a bundle of 150 channels, even though I only want access to about 15 of them. So 90% of the channels for which I'm paying are a complete waste. But the cable companies will only offer me channels packaged that way. At least I can get the paper bill for that "bundled" cable on the same bill as my Internet and phone, though!
But it gets even worse. Not only do I want just 10% of the channels that I'm forced to pay for when I become a customer, but I also want to watch only about five to 10 hours of each of those channels every month. But the cable company "bundles" my favorite programs with hours and hours of other programming that I will never watch on those channels.
For example, I like "The Daily Show" on
. But right before that show starts, the cable company makes me pay for "Drawn Together" or whatever it pushes into my TV set. In other words, I'm paying $150 a month for 150,000 hours of programming -- when all I want is 100 hours of programming a month. That means I'm watching less than one-tenth of 1% of the programming I'm paying for.
With the advent of ever-faster broadband, ever-faster processors and ever-better software, we're already seeing video Web sites that allow you to watch on demand only the content that you want. YouTube.com is just the first shot across the bow in the video revolution.
iTunes store is another. My new video Web site that's still in beta is another. (I'll tell you more soon!)
The ability of cable companies to bundle the 99.9% of content that you don't want with the 0.1% of content that you do want will go the same way as the ability of music companies to bundle 10 terrible songs with one good one.
You want to fight the empowering of the consumer? You want to bet that the cable companies can fight the price erosion that's just about to start impacting their business? That's not a good bet. As my trademarked phrase states, "They can't stop the revolution." They just can't.
AT&T, of course, is just getting started in the business of charging their customers outrageous amounts of money for the 0.1% of content that the customer will consumer. And they're going to spend billions upon billions building the cable "head end" for broadcasting that content nobody wants. And they're doing it just in time for the revolution to really kick in and undermine that investment.
Guess they'll have to continue to figure out how to get some new "de-regulations" or something from the government to ensure they get some return on that investment as the telecom industry has been doing since AT&T was born. Meanwhile, the free market is going to pass them by anyway. Nobody's stopping this revolution, man.
Sell Comcast, cable and all of those that are trying to stop the revolution, because they will lose.
At the time of publication, the firm in which Willard is a partner was net long Apple and Google, although positions can change at any time and without notice.
Long-Term Resistance Looms, by Alan Farley
AT&T and Comcast are solid telecom performers, but how long can the party last? Both stocks are trading at multiyear highs after breaking out in September. But they're also headed toward major resistance that could stall upward progress. My advice is to pick them up for trading profits but avoid them as long-term investments.
rallied to a recovery high at $29.61 in 2003 when it was known as SBC, near the end of its long bear-market decline. It returned to this level one month ago and broke out on high volume. The stock has been moving higher in a steady uptrend since that time, but trouble lies just above current price levels.
Note the massive double top formed between 1998 and 2002. The stock is now pushing into broken support from that pattern between $35 and $38. This barrier should slow the rally and might even trigger an intermediate correction that carries it back down into the upper $20s.
How can long-term resistance trigger reversals five or six years down the road? Because all types of technical traders and institutions watch these levels, using them to take profits and reverse positions.
Comcast broke above 2004 resistance at $35.36 in late September and rallied to a four-year high. The stock has continued to move higher since the breakout and is now approaching $40. Like AT&T, Comcast is slowly approaching longer-term resistance that could end its strong rally.
Note the rounded top in 2001. This looks like the end of the road for the current uptrend. The good news is there's still time to pick up the stock and take away a few points before resistance kicks into gear. So it's OK to buy on a pullback as long as you keep watch on the old high as the rally progresses.
Jim Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO.
Alan Farley is a professional trader and author of
The Master Swing Trader
. Farley also runs a Web site called HardRightEdge.com, an online resource for trading education, technical analysis and short-term investment strategies.
Cody Willard is a partner in a buy-side firm and a contributor to TheStreet.com's RealMoney.