A downward momentum is currently building in the U.S. that appears to be on pace, and strong enough, to push the economy back into recession before year end. In the week of Aug 22-28, existing home sales, core durable goods and new home sales all came in below expectations with reported numbers of 3.83M, -3.8%, and 276K respectively, against expectations of 4.68M, +0.6%, and 333K. The only silver lining was unemployment claims came in better than expected on Aug 26, falling to 473K versus expectations of 488K, yet still remaining at elevated levels.
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So which companies stand to profit should the country fall back into a recession? Interestingly, one commonly overlooked group that will profit in a prolonged recession are the cable companies and home entertainment providers. As consumers elect to stay home rather than spending money to go out, cable bills will naturally rise along with the company's bottom line. According to a recent Bloomberg article, cable bills rose 8% in the second quarter to $123 per month.
Let's take a look at the performance of some of the top cable and satellite companies:
|NYSE:TWC||Time Warner Cable Inc.||44.00%||15.92|
|NYSE:CVC||Cablevision Systems Corporation||19.98%||24.13|
|Nasdaq:DISH||Dish Network Corp.||6.09%||10.64|
|Data Source: Finviz (08/27/10)|
As you can see from the list, in the trailing year almost all of the cable and satellite companies performed exceedingly well (with the exception of TiVo). In comparison, the S&P 500 (NYSE:SPY) barely squeaked out 2.50% in the same period.
DirectTV was the best performing company in the list, having risen over 50% in the trailing twelve months. Part of the success of DTV's can be attributed to the loyalty of its customer base. According to DTV's second quarter statement, DirecTV's average monthly churn rate in the U.S. was 1.51%, one of the lowest in the industry. They appear to know what their customers want, but at a P/E of 24.69, it could be an expensive investment at this point.
The Bottom Line
In addition to the usual defensive sectors, such as utilities and health care, investors should also put cable and satellite companies on their watch list. (For related reading, take a look at Will Digital TV Allow You To Ditch Cable?)
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