Cable Stocks Feel Market Shock

The stock market continued its downward spiral last week, with the Dow Jones Industrial Average dropping to its lowest point in five years, as credit uncertainties and forecasts of a prolonged and deep economic recession spooked investors.

The Dow Jones Industrial Average was down more than 100 points last Friday, after the most volatile day in its history — the index ranged from a low of 7,882.51 to a high of 8,901.28, a 1,018-point swing. The Dow closed at 8,451.19, down 128 points. For the week, the index was down nearly 1,900 points, or about 18%, the worst in its 112-year history.

The markets were in turmoil for most of the week, as the health of the global economy came into question. On Oct. 8, a cadre of six international banks banded together in an unprecedented move to lower interest rates, which buoyed the market last Thursday for most of the early trading session — the Dow was up 190 points in early trading Oct. 9 — but that quickly turned into a deficit as investors worried over the availability of cash.

A big sell-off came in the late afternoon when Standard & Poor's put Dow component General Motors on credit-watch negative, sending shares of the auto giant down 30%. Earlier in the day, a report in The Wall Street Journal quoted economists who predicted the contraction in the U.S. economy could last into the first quarter of next year.

Leading the decliners among cable operators was Charter Communications, down almost 38% (25 cents) for the week; followed by Mediacom Communications, down 34.8% ($1.96) between Oct. 3 and Oct. 10, to $3.68 per share. All of the other cable operators showed declines during that period — Cablevision Systems dipped 28.2% to $15.53, its lowest point since 2004; Time Warner Cable was down nearly 13%, to $19.57; and Comcast fell 16.6%, to $15.36.

Satellite-TV stocks were battered as well — Dish Network hit a 52-week low of $16.09 last Thursday (down $2.10 or 11.5%) and was down 27.7% for the week. DirecTV Group finished last Friday at $19.59, down 20.9% for the period.

Programmers also took it on the chin, with Time Warner Inc. closing at $9.19 last Friday, its lowest level since 2003. For the week, the stock declined 24.2%, or about $2.93 per share. Like their cable-operator brethren, no programmer was left unscathed — Viacom shares hit its lowest point since its split with CBS Corp. in 2006, ending Friday at $17.10 (down $3.58 or 17.3%) and finishing the week down 26.8%. News Corp., which has lost a staggering 55% ($11.49 per share) of its value this year, reached yet another 52-week low on Friday, closing at $8.46 per share, down 75 cents each or 8.1%. News Corp. was down 23.3% for the period.

Rounding out the sector was The Walt Disney Co., down 22% for the period to $23.04 (its lowest point in more than a year); Discovery Communications, down 15% to $11.12; and Liberty Entertainment, down 32.1% to $15.96 per share.

Perhaps more striking are the historically low multiples at which some of these stocks are trading — Cablevision was trading at 4.5 times 2009 estimated cash flow, Comcast at 4.8 times, Time Warner Cable at 5.5 times and DirecTV at 3.5 times. In past years, the sector has traded at multiples as high as 16 times cash flow.

Miller Tabak media analyst David Joyce said that the market is being hit by the double whammy of hedge funds being forced to sell their stock holdings to repay investors and 401(k) participants — who are usually restricted to adjusting their portfolios on a quarterly basis — selling off stock at the beginning of October.

“That's why there is no trading based on any fundamentals,” Joyce said. “It's all forced selling feeding on itself from other forced selling.”

But no one is ready yet to call a bottom to the market just yet.

“These are new and unusual times,” Joyce said.