New Media's Love Fest

K.C. Neel

The digital divide means different things to different people. In the world of finance, it means that old media companies such as cable operators aren't luring investors like Internet-related companies such as Cisco Systems and Terayon Communications Systems.

And the markup of those high-flying Internet stocks may pale in comparison to the sweeping love affair Wall Street is starting with wireless companies. Indeed, AT&T's spin off of its wireless assets may be one of the most eagerly awaited stocks in recent memory. Other wireless companies are also benefiting from investors' infatuation with wireless technology, making some investors wonder whether broadband providers will be as strong a competitor as some thought just a few months ago.

The gap between high-tech companies and industrial firms is widening daily, despite occasional profit taking. Cable companies have been largely left out in the cold. Few have withstood the onslaught from old to new media assets.

Adelphia's stock is off 20% this year; Cablevision Systems' shares have sunk about 18%; Comcast's shares are down almost 20%; Cox's stock is off 15%, and Insight shares are down a whopping 30% since January. Charter Communications, which started out strong when it went public last November, is off 41% from its high of $27.75.

Conversely, companies like Cisco, Next Level Communications, About.com and Broadcom Corp. are seeing their stocks skyrocket. Simply put, investors can't get enough Internet stocks. And that ranges from solid performing technology companies like Cisco to companies that show no profits and increasing losses.

Some investors wonder whether the new media and Internet stocks can sustain such frenzied attention. Some analysts are recommending their clients not bulk up more than 20% of their stock portfolio on high-tech stocks.

Yet others maintain that old media firms are becoming increasingly vulnerable to rising interest rates and increased competition. Most high-tech media and Internet firms have relied on venture capital rather than debt to expand so rising interest rates won't affect those firms. And as competition for customers continues to grow from all angles, traditional media companies are getting squeezed. Moreover, many of the most popular Internet and high-tech stocks are seen as more nimble than the staid broadcasting and cable companies.

So should investors dump their cable stocks? Some influential and powerful investors - notably Gordon Crawford of Capital Research - have been doing just that.

It's ironic that the PR story behind cable's broadband pipe, which served the industry well in 1999 on Wall Street, hasn't mattered in 2000. That stock prices dropped may have been inevitable. Chock it up to short-term profiting.

But if the stagnation continues throughout the summer and fall, and the NASDAQ continues to rise, cable operators will have to worry that Wall Street is saying - that the assets they've taken into the New World aren't stacking up well in a competitive field.