We’ve reached yet another milestone as technology continues to reshape our world and our lives.
For the first time ever, fewer than half of us now watch our shows via “traditional” TV.
Gone are the days of antennas wrapped in tin foil to try to improve the grainy signal, although over-the-air TV still exists.
Almost gone are the days of cable boxes.
We are now in the age streaming content.
We watch everything from crazy animal videos on YouTube – I say David Letterman was first with his Stupid Pet Tricks – to 34 seasons of “The Simpsons” over the internet.
Streaming it to our mobile devices, smart televisions, or attaching a streaming stick like Roku, Firestick, Chromecast, or Apple TV.
According to the latest data from Nielsen, the main sources of viewing are now:
- Streaming: 39%
- Pay TV: 29.6%
- Broadcast TV: 20%
But even as streaming clearly leads overall, subscriber growth has slowed for most providers. Many are also raising rates, which could dent future growth even more.
The shift to streaming is a massive transformation that upends nearly a century of massive growth in traditional TV viewing, from the first television station in 1928 (W2XB in Schenectady, NY) to the first cable system in 1948 (in Mahanoy City, Penn.)
As investors, we naturally want to know if that seismic shift is an opportunity.
The answer is yes. But probably not the way most investors think.
Ranking the Providers
You’re probably well acquainted with the biggest streaming providers. After all, they are now household names.
- Netflix (NFLX) continues to reignwith 238.5 million subscribers.
- Amazon (AMZN) Prime Video comes in second with 200 million subscribers.
- Disney (DIS) with its Disney+ ranks third with 146.1 million subscribers.
Netflix is the only pure streaming play. Both Amazon and Disney are huge conglomerates with multiple business units. NFLX and AMZN have had good years so far, but not so much Disney.
If you’re looking to own a provider, Netflix is the clear winner in my Quantum Edge system with a Quantum Score of 69. That’s right on the border of the sweet spot buy zone between 70 and 85. The fundamentals and technicals also rate right around 70, which is quite good.
If I have any concerns about NFLX, it would be the high debt at 81.5% of equity. That’s not to say that companies with high debt can’t do well, but it is a potential headwind. Especially in a time of higher interest rates.
A key part of my system is tracking Big Money inflows in stocks. Netflix hasn’t generated a Big Money buy signal since July 19. But I’m not too put off by that, as volume is light in August and share prices tend to be more volatile.
Amazon’s Quantum Score comes in about 10 points lower at 60.3. That’s not bad, and certainly not a reason to sell if you own shares. The technicals are solid, though not spectacular. But the fundamentals are more concerning with a slightly negative profit margin, high debt (106.1% of equity), and a high valuation at 63 times forward earnings.
There are just better opportunities for your money.
Disney’s Quantum Score is a low 37.9, so I would not buy right now.
Shares are down more than 25% over the past year, bringing the technicals rating down to a poor 26.5. Big Money has only bought once in 2023. And the fundamentals are middling at best.
A Much Stronger Stock to Own
Significant growth is hard to come by for the providers, though Netflix remains a solid play.
A better way to make money on the streaming trend is to look to companies providing the necessary equipment, services, and infrastructure to make it possible.
That’s because these same pieces of equipment, services, and infrastructure are needed in multiple power trends.
I’ll give you a great example: Arista Networks (ANET).
I recommended ANET to my Quantum Edge Trader readers on July 15. It’s up nearly 10.5% (and is now above our buy limit) since then, when the Nasdaq has lost more than 3%.
Arista develops and sells cloud networking solutions to more than 9,000 customers in a range of industries.
Guess where all that video being streamed is stored? In the cloud. (Or in data centers to be precise.)
And it needs to be accessible without blips or those spinning circles that always seem to appear moments of peak drama or major plot twists.
And it needs to be available on an individual basis for millions of subscribers.
With a stellar Quantum Score of 86.2, ANET is one of the top-ranked stocks in my system. The fundamentals and technicals also rate in the mid- to upper 80s, and Big Money has been buying shares all year.
This is exactly the trifecta I like to see when buying a stock.
Shares have shot nearly 50% higher the last 12 months, and all of my data and analysis points to higher prices in the future.
These are the kinds of stocks you want to own as we get through summer volatility and head towards a big finish to 2023. So next time you’re streaming your favorite video, think about what’s necessary to make that possible as much as what app you’re watching.
Talk soon,
Editor,
Jason Bodner’s Power Trends