Cable or Telcos: Which Is the Safer Bet?

Can't decide between cable companies and telecoms for your next 2008 stock pick? RBC Dominion Securities analyst Jonathan Allen is betting that cable is the safer option of the two as free cash flow in the sector should expand significantly over the next year or two.

Of the top cable stocks, Mr. Allen recommends Rogers Communications Inc. (RG), Shaw Communications Inc. (SJR), Cogeco Cable Inc. [CCA/TO] and Quebecor Inc. (IQW) as the upcoming wireless auction is expected to create uncertainty in the telecom space.

Mr. Allen says that Rogers stands to gain from its bundled offerings that gives the company a more balanced subscriber share and lower EBITDA margins from lower marketing costs and loading.

For Cogeco Cable, Mr. Allen says he's still looking for continued growth in the company's Canadian and Portuguese operations.

In a note, Mr. Allen wrote:

Cogeco’s Canadian operations have reported several quarters of subscriber upside surprises (strong high-speed, Internet and basic video adds), however financial results have generally been moderated by rising operating costs associated with reaching higher scale for telephony).

RCI vs. SJR vs. IQW 1-yr chart: