Cox: for Income and Growth

10/23/2002 12:00 am EST

Focus:

Roger Conrad

Founder and Chief Editor, Capitalist Times

When it comes to utility stocks – ranging from regulated power providers to unregulated cable and telecom firms – there is no individual with more industry knowledge and expertise than Roger Conrad. He is highly adept at isolating both the best long-term growth opportunities as well as the top income selections. The latest pick in his Utility Forecaster crosses over both his growth and income portfolios.

“When Adelphia went bust last summer, Wall Street panic-sold cable stocks and bonds, including our Growth Portfolio holding, Cox Communications (COX NYSE). Cox chairman James Kennedy, however, has since picked up another $1.1 million of his stock. I advise following his lead. Buy the common stock. In addition to the common, I suggest buying the latest addition to our Income Portfolio – Cox 6.875% notes of 6/15/2005. 

“Like its rivals, Cox grew its base of 6.3 million customers with acquisitions financed partly by debt. What’s set it apart is demonstrated ability to convert basic subscribers to new services, including digital cable, high-speed Internet, and basic phone service. This ‘bundling’ has boosted margins, increased customer retention, and upped cash flows to cut debt. 

“Balance sheet strengthening will accelerate in 2003 as the company generates free cash flow for the first time and winds down its massive capital spending program. That could well lead to a boost for Cox’ already industry-leading BBB credit rating. And it gives it unmatched financial power to take advantage of the inevitable industry rebound.

“Long term, I look for Cox common to throw off returns of at least 15% a year to growth investors. Income investors, however, can earn a locked-in yield of more than 7% for nearly three years by buying the company’s 6.875% note of 6/15/2005. The only way you lose is bankruptcy, which is about as likely as life on the moon, and there is no interest rate risk.  Buy the notes up to $101.”

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