4 Cable and Home Entertainment Stocks to Consider Now

Bill is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Many years ago, television reception was all about “rabbit ears.” Today it is about cable and satellite offerings. Many of those companies offer Internet and related add-ons as well. I am going to look at some of the country's larger cable/home entertainment companies.

Comcast (NASDAQ: CMCSA) is the nation's largest cable television provider, reaching more than 22 million customers in 39 states and the District of Columbia. It is also a major provider of Internet services, with 16 million subscribers, and land-line phone services, with 9 million users.

The big recent news for Comcast is its decision to acquire the 49% of NBC Universal it did not already own. This nearly $17 billion deal will make Comcast the nation's only truly integrated media company, offering both programming and delivery services. The model was tried, and failed of course, by others in the past, including General Electric itself. But no company has ever had the scale that Comcast now possesses, and I am optimistic that this can succeed.

Comcast has a solid first quarter of 2013, with revenue of $15.3 billion, just shy of expectations of $15.4 billion but up 3% from the first quarter of 2012. Earnings, after omitting the one-time gains on the sale of an asset, came to approximately $3.1 billion, or $0.51 per share, up 13% from the year-ago quarter.

Looking ahead, the NBC unit is engaged in a rebound after several difficult years, and with some promising new shows and an improving economy, advertising revenue is looking up. The company is attracting far more monthly Internet subscribers than it is losing television and land-line customers. Earnings are likely to continue to advance at a low double-digit clip. But at its fairly rich valuation, I see the company pretty much treading water with the market over the next year or two.

On a roll

Time Warner Cable (NYSE: TWC) is the second-largest cable company in the country, with about 12 million customers concentrated within just five states. It too has been on a financial roll. Its 2012 profits were an all-time record for the company, and the first quarter of 2013 continued the plan. Revenue in the quarter was up 7%, led by a 25% jump in business revenue, to $5.7 billion.

During the quarter, two months of revenue generated from the acquired Insight Communications helped to boost the number. Without that boost in revenue, it still would have been up about 3.3% from the year earlier quarter. Profits came to $1.34 per share, up from $1.20 per share a year earlier.

Comparisons this year are not likely to be favorable due to a record $2.60 per- share profit in the third quarter of last year that there is little chance of duplicating in 2013. But with Time Warner Cable's above-average, 2.8% dividend yield, modest valuation (PEG is 1.2) and consistent stock buybacks, I favor this stock as a long-term holding.

On top of this, Time Warner was recently approached by Liberty Media regarding a possible merger, causing shares to jump nearly 8%. I think Time Warner will only strengthen its position as it continues to offer incentives to lock up content from media companies and prevent further erosion from online competitors.

While Time Warner Cable is losing residential video customers - 119,000 in the first quarter of 2013 - compared with 94,000 during the same quarter of 2012, the company did gain subscribers in the broadband and digital phone categories. Revenue from Residential Services jumped 4% in the first quarter of 2013, primarily due to 2.2% growth in voice revenues and 17.3% growth in high-speed broadband services - internet data.

DirecTV: The growth stock of the group

DirecTV (NASDAQ: DTV) is the largest satellite television provider in the country. As of Dec. 31, 2012, it had just over 20 million domestic users, plus another 4 million in Latin America. It holds a 93% stake in SkyBrazil with 3.8 million subscribers, and a 41% interest in Sky Mexico. Those properties outside of the United States are more profitable by 5% in profit margin than the domestic business is, and thankfully for DirecTV, those Latin properties are growing their subscribers at a rate far outstripping the domestic business.

In the first quarter of 2013, the company added 604,000 domestic customers, and 583,000 in its smaller Latin American unit. Overall in the quarter, revenue grew by 8% to $7.6 billion and earnings came to $690 million, or $1.20 per share, the latter being a 12% advance from the year ago.

I have little doubt that DirecTV will continue to expand, particularly in its high- margin Latin business. It will continue to buyback shares as well. Those looking for a long-term growth situation need look no further than DirecTV.

Conclusion

As long as people live in homes they will want entertainment options. From a long-term growth point, I prefer the foreign exposure of DirecTV. For growth and income, Time Warner Cable stands apart. 

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Bill Edson has no position in any stocks mentioned. The Motley Fool recommends DirecTV. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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