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Comcast has potential; avoid Black & Decker

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Dear Mr. Berko:

Please give me your advice on Comcast Cable at $19 a share. My broker wants me to buy 400 shares. I also have 200 shares of Black & Decker that I bought in 2003 at $36 because you recommended it. My broker also wanted me to add 100 more shares of Black & Decker to my portfolio, because it’s down 28 points from its 12-month high.

E.P., Kankakee, Ill.

Dear E.P.:

It pains me greatly to say something nice about Comcast Corp. (CMCSK-$16.14), because I’m having a difficult time getting management to speak with me.

Comcast, the largest cable company in the universe, has increased its income sevenfold in the past 10 years, has 24 million cable subscribers and 10 million subscribers for its digital service; nearly 9 million subscribers use its high-speed data service (big deal); and 1.5 million use its telephone service. However, management expects much slower revenue growth and higher capital costs due to a slowing economy and aggressive competition.

Today consumers have to watch their nickels and dimes. Demand has gone mushy because almost everyone has cable, and “poaching” from the competition has become enormously difficult. As if that weren’t enough, CMCSK’s phone subscribers are being co-opted by the large telecommunications companies that are gaining traction by promoting video services. Perhaps that’s why I’m hearing that CMCSK may begin to offer Color Radio to generate a new revenue stream and poach subscribers from satellite radio.

The share prices of Cablevision, EchoStar, LodgeNet and Time Warner have self-destructed from their highs of the past 12 months. Even Comcast’s share price crashed from last year’s $29, and if estimated earnings for 2008 come in at the Street’s expected $1.05 per share, CMCSK would sport a respectable price-earnings ratio of 15. Management believes 2008 revenues will grow by 11 percent, but that’s too enthusiastic; I believe 8 percent is more realistic.

Still, that adds $2.5 billion to CMCSK’s anticipated $33.3 billion in revenues. Considering a $14.60 per share book value, perhaps CMCSK might be attractively priced for long-term gains. The good reasons to own CMCSK exceed negatives by a factor significant enough for me to agree with your intent to buy the stock.

CMCSK is not the growth stock it was years ago. With a market cap of $65 billion, CMCSK has become a basic utility just like the telephone companies of the 1980s. However, a purchase at today’s price could possibly increase in value by 50 percent to 65 percent in the coming few years. I suggest that you purchase 200 shares now; wait, and if the shares move down to the $14-$15 level, add 200 new shares to your portfolio.

I’d like to take credit for recommending Black & Decker in 2003, but the stock was not on my radar screen. It should have been, but it wasn’t.

The advice you received on Black & Decker proves to me that your broker has no more sense than God gave a turnip! Black & Decker Corp. (BDK-$68.88) sells some of the best power tools, lawn and garden tools, hardware and kitchen accessories found in this country and across the pond. But at the current price, I wouldn’t go near the stock, because I think earnings are going to sink like a Steinway crashing down a deep mine shaft.

The construction industry is the largest employer in this country; the housing boom has wilted, new home construction is at its lowest level in 16 years, and commercial construction is beginning to melt. So where is the demand for new circular saws, routers, generators, hammers, etc.? Sell the stock right now, because I believe it’s headed lower. Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net.© Copley News Service

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