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Cutting the Cord on Cable Stocks

Judging by the tremendous rise in popularity of Netflix , Redbox and Hulu services, there has been in a shift in the way that people are receiving their media content. The latest round of earnings

Judging by the tremendous rise in popularity of Netflix , Redbox and Hulu services, there has been in a shift in the way that people are receiving their media content. The latest round of earnings for cable companies are confirming that shift, with at least on the major cable providers indicating subscriber losses.

The availability of content on their internet has allowed for more convenient viewing. Compounding that convenience is the fact that many of the shows are free of cost or only a fraction of the price of cable on a monthly basis. The cost efficiency and convenience combine with the current tightness in consumer spending to create a rather hostile environment for cable companies.

While cable will continue to reign in the coming years as many older people and families consider it a necessity, the younger generation and the current twenty and thirty-somethings who can easily navigate Rokus and Redboxes seem to either be canceling their subscriptions for a cheaper alternative or never adding them to begin with.

This trend can be predicted to continue in the coming months and years as more content is available online. So for investors holding onto shares of cable companies on the hopes that they’ll recover or continue to climb, it might be worthwhile to consider how diversified they are.

Time Warner Cable (TWX): Time Warner Cable Inc. announced it lost 128,000 residential video subscribers to end the quarter at 11.9 million. The 1.1 percent loss was accompanied by middling-to-weak trends in subscribers. The weak economy and easy access to shows sans a cable provider will likely continue to weigh on shares of Time Warner. These elements are being largely ignored by investors who have driven shares of Time Warner 14 percent higher this year in spite of underperforming estimates and a waning subscriber base.

The losses at Time Warner are decelerating from last year and the year earlier when consumer sentiment was at its worst and many were choosing to slash their cable. It’s also worth mentioning that the company increased its broadband subscribers which help offset some of the losses from cable.

Comcast Corp (CMCSA): Analysts appear to be largely in favor the world’s biggest cable provider with 15 analysts calling shares a buy in spite of the current market conditions. 6 analysts call the stock overweight and seven are saying it’s a hold. Considering the fact that Time Warner underperformed analyst expectations though, Comcast may be in danger of doing the same when they release their own earnings on November 2nd.

Comcast though, unlike Time Warner seems to be breaking away from the traditional cable format, offering content on Xbox and other fresh avenues in order to negate some of the losses from traditional paying subscribers.

  Cablevision Systems Corp. (CVC) announced disappointing earnings on Friday. Third-quarter earnings fir the cable provider declined to $39.6 million, or 14 cents a share, from year-ago levels of $112.4 million, or 38 cents a share.  Revenue did add 8 percent  to reach $1.67 billion. The numbers fell short of analyst expectations with a 65 percent profit loss. The company shed 19,000 video subscribers during the period, less than the 26,000 average estimate of Bloomberg analysts predicted but enough that their bottom line will be negatively impacted. In all likelihood those subscribers that have left might stay away as they sign up with new providers like Verizon, or abandon the service entirely in favor of internet programming. Shares of the company have declined 15 percent since the earnings report and 56.68 percent YTD. In spite of seeming technically inexpensive with a P/E ratio of 11.91, the cable provider is likely to struggle to regain lost value as subscribers leave and force the company to make up the difference in other areas of its business.

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