Cable Stocks Finally Take Lumps

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Cable stocks finally walked into the bear trap last week,
suffering price losses in line with broader stock indexes and losing some of their luster
as recession-resistant safe havens.

Through last Thursday's close, most big MSO stocks
suffered double-digit setbacks, while the NASDAQ Composite Index dropped by 12 percent.

MediaOne Group, with the biggest international exposure,
fell the most, sliding to $36.19 per share at Thursday's close from $44.19 the
previous Friday, an 18 percent plunge.

But Comcast Corp. also lost 14 percent of its value, as did
Cox Communications Inc., while Cablevision Systems Corp. fell by 13 percent and Time
Warner Inc. shed 10 percent over that span.

Tele-Communications Inc., which is trading in line with
acquirer AT&T Corp., declined by only 3 percent.

Cable stocks opened mixed Friday morning.

Cox's, Comcast's and MediaOne's losses came
amid heavy volume, while others, including Adelphia Communications Corp. (down 10
percent), suffered amid thin trading.

Most analysts seemed to feel that cable stocks just got
caught up in the broad sell-off triggered by worries over Russia, Japan and Latin America,
and by increasing signs of sluggish profits at home.

"The multiples for the entire market are contracting,
but it seems that those cable operators with a more domestic focus are faring
better," Goldman Sachs & Co. analyst Louis Kerner said.

Goldman hosted most of the big MSOs during its Communicopia
conference in New York last week, and they continued to give upbeat presentations on new
business prospects -- especially telephony -- Kerner said. So the fundamentals
haven't changed.

Cox, though, got hit by a couple of analyst downgrades last
Monday, getting the week off to a bad start. SG Cowen cable analyst Gary Farber lowered
his rating on Cox to "buy," noting that the stock was just shy of his target
price of $58 per share, and that it was trading at 14 times next year's estimated
cash flow, versus 11 times for the MSO group overall.

Farber pointed to Cox's strengths, including upgraded
clusters acting as a strong base for new-product launches. But he said the group's
profit margins could get squeezed, even with solid subscriber and advertising gains, as
many operators hold rate increases to about 5 percent while some key programming costs
rise by 20 percent or more.

While cable seemed to thrive under "bright-blue"
skies, Farber said, now, "the picture's still blue. It just may not be as
colorful."

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