At Least Somebody Loves Charter

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When the quarterly reports of the four largest institutional holders of cable stocks came out last month, the third quarter's most popular cable-operator stock came as a surprise: Charter Communications.

Charter — which has taken a drubbing in the years since its 1999 initial public offering, when it was priced at around $20 per share — was one of the biggest buys between June 30 and Sept. 30 by FMR Corp., the Boston-based parent of the Fidelity mutual funds.

FMR boosted its Charter holdings by about 8.5 million shares in the quarter, according to Nov. 13 filings with the Securities and Exchange Commission, increasing its total Charter holdings to 23.4 million shares.

FMR did start the year with a substantial position in Charter at 14.96 million shares, but hadn't added to it until the third quarter — around the time the operator began to rebound.

Charter's stock price has more than doubled (up $1.44) since the beginning of the year, and most of that growth occurred in the third quarter, particularly in July and August. It closed at $2.95 on Nov. 29, 2 cents shy of its 52-week high.

Part of Charter's popularity could be traced to reports by UBS Securities cable analyst Aryeh Bourkoff, who increased his price target to $2.50 in October, when the stock was at about $2. Bourkoff had been touting Charter for weeks, issuing two reports and holding a conference call to get his point across.

Bourkoff, interviewed recently, did not want to comment on specific clients' buying patterns, but did say “we got a lot of traction around our Charter call.”

FMR's enthusiasm for Charter stock was not shared by the other large institutions. Of the three other large funds with cable interests — Capital Research & Management, Capital Guardian Trust and Janus Capital — none held any Charter shares.

AT&T LOVE FROM FMR

Charter wasn't FMR's biggest buy in the period. That distinction went to AT&T. FMR added 25.8 million shares in the San Antonio-based phone giant to its portfolio in the third quarter, boosting its position to 212.8 million AT&T shares.

Following closely behind was Qwest Communications. FMR added 17.3 million shares in the Denver-based regional Bell operating company to its portfolio in the third quarter, boosting that holding to 254.7 million shares.

Qwest — battered last year after losing to Verizon Communications in the bidding for MCI, and flirting with bankruptcy — has rebounded in 2006 after drastic cost cuts. Qwest has also made inroads into offering its own quadruple play of voice, wireless, video and data, signing deals with Sprint Nextel to resell wireless service and reselling DirecTV's direct-broadcast satellite TV service.

Qwest is up more than 40% since starting the year at $5.60. It has fallen back since the third quarter, though. Between June 30 and Sept. 29, Qwest's share price ranged from $8.09 to $8.72. On Nov. 28, it closed at $7.60.

For the other three funds, Comcast appeared to be the cable stock to own: Capital Research added 4.05 million shares, FMR added 5.9 million shares and Janus — an early investor in the largest cable operator in the country — added 3.6 million Class-A special common shares and 1.3 million Class-A shares.

Telco stocks, a prime target for the four funds late last year, fell a bit out of favor.

Although, as mentioned, FMR added 25.8 million AT&T shares to its portfolio, the others either slightly increased their holdings in the telco or dramatically reduced them.

Capital Guardian added 58,000 AT&T shares in the period, while sister fund Capital Research shed 19.5 million AT&T shares, reducing that holding to 282.2 million shares. Janus added 379,000 AT&T shares in the period, ending September with 8.6 million shares.

Verizon fared little better: FMR bought 3.3 million shares in the period, while Janus dumped 287,000 shares.

Qwest was looked at in a better light, with FMR adding 17.3 million shares in the period, ending with 254.7 million shares. Janus more than quadrupled its position, adding 312,500 Qwest shares in the third quarter to a total of 392,500.

The funds appeared to be keeping a particularly keen eye on programmers.

Viacom, sagging this year (down about 5% since January) over fears of a declining ad market, was a buying opportunity for some. Capital Research added about 7 million Viacom shares in the period, ending with 12.8 million shares. Capital Guardian sold 46,547 Viacom shares, ending with 1.5 million. FMR added 6.6 million Viacom shares, ending with 20 million.

CBS Corp., the broadcasting unit that split from Viacom in January, fared a little better than its former corporate cousin. Capital Guardian added 49,173 CBS shares to its holdings, and Capital Research added 6 million. FMR added 148,440 CBS shares while Janus added 565,518 shares.

Time Warner, which has enjoyed an upswing lately — it closed at $20.18 on Nov. 28, up 3.5% ($3.42) from its Sept. 1 close of $16.76 — took a beating from the funds.

Capital Guardian shed 5.1 million Time Warner shares in the third quarter. Capital Research, still one of the largest holders of Time Warner, shed 4.5 million shares. Janus sold about 2.5 million Time Warner shares, reducing its position to 3.6 million shares. FMR again played contrarian, adding 5.7 million shares of Time Warner stock, ending the period with 51.7 million shares.

SWING TO OLD MEDIA?

Despite the Time Warner sell-off, the rotation of institutional money from old media into new media appears to have wound down.

“Investors are looking for growth and cable operators have sustained a level of growth, with companies like Comcast seeming to have strong prospects,” Bourkoff said. “In an overall high-flying market, investors will be quick to sell at the first sign of operational weakness.”

Sanford Bernstein & Co. cable analyst Craig Moffet said more institutional dollars could find their way to so-called old media as Wall Street's perception of cable continues to change.

“The old adage is that growth funds invest with sentiment and value funds invest against it,” Moffett said. “When nobody wanted to buy cable, value investors thought it was a great bet. Now, suddenly the market has decided that cable's not such a bad business after all. That's exactly what growth investors want to see before they get interested.”

While Google shares have continued to soar, Yahoo stock, once a high flyer, is down about 34% ($14) since January, battered by weaker-than-expected ad sales and delays in its Project Panama search-engine project.

GOOGLE BUYS SLOW DOWN

Funds like FMR and Janus which had bought millions of shares of Google stock last year have substantially slowed down their buying.

In the third quarter, Capital Guardian added just 246,006 Google shares while Capital Research reduced its holdings in the Internet search giant by 15,000 shares. FMR added nearly 1 million Google shares in the period, but a far cry from the 10.3 million it added last year. Janus boosted its Google position by 632,355 shares, again a slowdown from the 1.7 million added last year.

Yahoo, the other Internet search giant, fared better with some than others. FMR appeared downright depressed on the stock, dumping 41.1 million shares in the quarter, while the other three funds showed more restraint. Janus added 6.7 million shares of Yahoo stock, ending with a total of 48.3 million shares, Capital Guardian added 4.06 million shares and Capital Research added 1.4 million shares.

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