Analyst bets on cable and on couch potatoes


With consumer confidence at a 16-year low, one Merrill Lynch analyst predicts cable stocks will see a boon as U.S. consumers start cocooning and become bigger couch potatoes. And he suggests that moviegoing will suffer.

The Conference Board consumer sentiment index for May this week showed a worse-than-projected decline to the lowest level since 1992 amid the continuing housing slump and higher food and gas prices.

However, as Merrill North American economist David Rosenberg highlights in a report, buying plans for TVs have hit new highs.

"Even though spending intentions for most items in the Conference Board survey, from autos to homes, sagged noticeably, the one segment that hit an all-time high in terms of buying plans for the next six months was the TV," he wrote. "Just as bicycles (unit sales up 5% year-over-year) are now replacing motor vehicle sales (down 11%) in order to get from point A to point B without spending $75 filling up the tank, households now seem bent on cocooning by staying at home to watch television rather than drive to the local theater and shell out more than $11 to watch a film (and an extra $5 on gas to get there)."

Rosenberg suggests investors get bullish on shares of cable operators. "If there is an 'outside of the box' investment idea here, it may be to turn positive on the cable stocks, which is a segment of the consumer discretionary group our sector strategists are relatively warm on," he said.

During an investor conference Thursday, Comcast chairman and CEO Brian Roberts also suggested that the digital TV transition would provide an opportunity for cable to gain subscribers. The possible ensuing consumer chaos "will play to our advantage" as a local service provider, he said. (partialdiff)