Analyst predicts cable stock rise

Forecasts boxoffice slump as consumers stay home

With consumer confidence having hit a 16-year low, one Merrill Lynch analyst predicts cable stocks will see a boon as U.S. consumers start cocooning and becoming bigger couch potatoes, while he suggests the boxoffice could see a drag.

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.

Consumer sentiment is key for the outlook of the U.S. economy as two-thirds of it is based on consumer spending.

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 a new 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 argued.

In an investor conference Thursday, Comcast Corp. 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.