CABLE'S COOL AGAIN

By Daniel Kadlec

Well, the cable guy finally showed up. No, this is not about getting my house wired for 500 channels. It's about a heroic investor who plugs into the cable industry and single-handedly rescues one of the decade's most imperiled collections of stocks. Who is this new-age superhero? None other than Supergeek, a.k.a. the mild-mannered computer kingpin, Bill Gates, CEO of Microsoft. Last week, after Gates agreed to pump $1 billion into Comcast Corp., Wall Street revalued the entire industry upward by tens of billions of dollars. A buyers' panic rippled through the cable world, and the Standard & Poor's index of cable stocks rose 13%.

What happened between last week's derring-do and October 1996, when Business Week sounded the voice of doom in a cover story called "Cable TV: The Looming Crisis?" Not much. The industry remains burdened with $50 billion of debt, still requires huge capital outlays, is threatened by satellite and wireless competition and has little earnings. As for Gates' investment, it's a pittance. Microsoft has $9 billion in cash on its books. Gates can afford to cover all bets.

But the doomsday view is only that, and some things have gone cable's way. The billions the industry has been spending to upgrade wiring will put expanded, premium-priced service in most markets in just a few months. At the basic level, cable has regained the pricing power it lost following mandated rate rollbacks in 1993-94. Even satellite competition appears less threatening now that News Corp. has abandoned its effort to jump-start a new national service.

Anyone paying attention could have seen these things happening, but it took an event like Gates' investment in Comcast to drive it all home. "In one day there's an epiphany," observes the FCC chairman, Reed Hundt. Gates is the premier techno-futurist of our time. "He's saying what's past is past--this is the future," notes media analyst John Reidy at Smith Barney. Some cable executives may now enjoy vindication for their expensive strategies, and investors may reap the rewards for their patience--although cable stocks have been so horrible that they'll have to shoot much higher to make up for lost time. Tele-Communications, Inc., a cable bellwether, is down 20% since 1993, even after the recent rally.

Still, the episode is a reminder that the market has herd instincts. The popular stocks are the ones that go up. But you never know what's popular until after a big move, and popularity can be fleeting. The best way to win is to hunt for good companies that are out of favor. Then wait. If they really are good, the herd will find them, usually after some event calls attention to what the crowd has been missing--like Gates writing a check to Comcast. That's the way Warren Buffett invests. Buffett--one of Gates' buddies, by the way--wouldn't touch most cable stocks because of the debt. But then he's never dabbled much in technology stocks because he finds them confusing. Gates, on the other hand, knows a thing or two about the information highway. He may not have Buffett's stock-market acumen. But Supergeek owns the market for cybersense.

Daniel Kadlec is TIME's Wall Street columnist. Reach him at kadlec@time.com