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SIVY ON STOCKS from money.com
April 27, 2001 Waiting for the payoff Cable television independent Comcast has a terrific franchise, but the stock has gone nowhere. Now it looks ready to pay off. By Michael Sivy Sometimes businesses have great franchises and are well run, but you'd never know it from the share price. Momentum investors would tell you to dump such a stock because the market just doesn't like it. Not me. It can sometimes take three or four years for a stock's price to catch up with its fundamentals, and if you're really a long-term investor, you should be willing to wait. As superstar investor Warren Buffett says, the stock market transfers money from the active to the patient. A perfect case in point is Comcast [CMCSK], the No. 3 cable television company (after AT&T and AOL Time Warner, the owner of this website). I recommended Comcast stock in December 1999 at $52 a share and over the next five months it fell 40 percent to around $30 a share, at which point I recommended it again. Now, at $44, I still like what I see. There were several reasons for last year's decline. Most cable stocks dropped in the initial phases of the Tech Wreck (although most of them turned up long before other tech stocks did). Comcast also suffered after reporting lower-than-expected earnings for last year's first quarter, in part because of expenses associated with acquisitions. In addition, because 85 percent of the company's voting stock is held by insiders, the potential for a takeover doesn't support the stock when it becomes undervalued. Comcast's dealmaking may have hurt reported earnings last year, but it has greatly enhanced the long-term value of the company's franchise. Through strategic sales, purchases and swaps, Comcast has sharpened the focus of its cable territories, which are centered on the greater Philadelphia market. In addition, Comcast has aggressively upgraded its systems to use the latest digital technology. Moreover, the company has valuable investments in other businesses, including a 57 percent stake in the QVC home-shopping network. Over the past year, Wall Street analysts have become increasingly bullish on Comcast's future, and two have recently upgraded the stock to a "strong buy" in advance of the company's first-quarter earnings report expected on May 8. The reason: Two important trends are bullish for the cable TV industry as a whole, and Comcast is at the forefront of each. First, cablers are poised to reap the benefits of technological improvements, including digital video, interactive television, cable modems and cable telephone service. Second, the industry will finish a series of very expensive upgrades next year and will then enjoy several years of lower capital spending. That means that the torrent of cash the cable TV business generates will be available to companies to reduce debt, buy back stock, raise dividends, make strategic acquisitions or otherwise increase shareholder value. At the current $44 share price, Comcast trades at 18 times next year's estimated cash flow. That's a fair valuation and could look very cheap a couple of years from now as Comcast cashes in on its first-rate technology and enjoys soaring free cash flow. ### Post your comments on Michael's column at: http://www.money.com/depts/investing/sivy/index.html To subscribe or unsubscribe to Sivy on Stocks, go to: http://www.money.com/email/ ----------------------------------------------------------- MARKETPLACE ----------------------------------------------------------- CONTACT THE BIGGEST COMPANIES IN THE WORLD! Over 5,000 contact names in the OFFICIAL FORTUNE Databases. DOWNLOAD THEM NOW! http://www.fortune.com/datastore/?mn1 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * Special Internet Offer!!! Sign up for a RISK-FREE issue of MONEY MAGAZINE at http://www.money.com/subscribe2 Or if you prefer call our toll-free number 1-800-544-4594 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * We may, from time to time, contact you with offers for Time Inc. products and services which we think may be of interest to you. If you would prefer us not to contact you in this manner, AND YOU DID NOT INDICATE THIS PREFERENCE AT THE TIME YOU SIGNED UP for the Sivy on Stocks online newsletter or any other Time Inc. online newsletters, please let us know by sending us an e-mail at <no_solicit@money.com<. Additionally, from time to time we may provide your e-mail address to carefully chosen companies whose offers we think may be of interest to you. If you would prefer us not use your e-mail address in this manner, AND YOU DID NOT INDICATE THIS PREFERENCE AT THE TIME YOU SIGNED UP for the Sivy on Stocks online newsletter or any other Time Inc. online newsletter, please let us know by e-mailing us at <no_transfer@money.com<.
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