In the 1990s, there were plenty of high-flying telecom stocks. Mobile phones were mainstream and consumers were snapping them up. Demand was so high that many smaller, regional telecoms sprang up to service the new and growing market. Then came the smartphone era, and another opportunity to reap the rewards.
When the global Covid-19 pandemic hit in 2020, the demand for remote connectivity went through the roof.
However, many telecom stocks have fallen out of favor with investors over the past five years. Companies have rung up massive debts as they race to upgrade infrastructure and wireless spectrum to support 5G. At the same time consumers aren’t snapping up new smartphones the way they once did.
Consolidation is creating new giants and shaking up the industry’s pecking order. As a result of the challenges and the changing landscape, these telecom stocks are being left behind.
There are still telecom stocks out there that offer the prospect of long-term growth. But the companies listed here? Unless something changes, they are best avoided by growth investors. I mentioned the cost of 5G infrastructure a moment ago. If you’re interested in the companies that are poised to reap the rewards of the move to 5G, here are some suggestions.
- AT&T Inc. (NYSE:T)
- Mobil’nye Telesistemy PAO (NYSE:MBT)
- Orange SA (NYSE:ORAN)
- Telephone & Data Systems, Inc. (NYSE:TDS)
- United States Cellular Corp (NYSE:USM)
- Verizon communications Inc. (NYSE:VZ)
- Vonage Holdings Corp. (NASDAQ:VG)
Telecom Stocks to Leave Behind: AT&T (T)
AT&T in 2007 was flying high. It was the country’s largest wireless carrier by subscribers. It scored the rights to be the exclusive carrier of the iPhone, the hot new device that was ushering in the era of the smartphone. Investors were happy, with T stock rallying from a tough 2004. That year, T stock topped $42.
By 2011, the picture was decidedly less pretty. Rival Verizon gained the ability to sell iPhones, ending AT&T’s exclusivity. Verizon overtook AT&T to become the nation’s largest carrier. Last fall, amid industry consolidation, AT&T slipped into third place.
The company piled on debt to acquire satellite provider DirecTV for a total of $67 billion in 2015, just as internet-based video streaming services were ramping up. The company announced in February it was spinning off DirecTV — netting $7.8 billion. In 2018 it shelled out $85 billion for media giant Time Warner, only to announce a deal to spin off WarnerMedia as part of a proposed video streaming service several months ago.
AT&T is saddled with debt, in a reactive place, and facing tougher competition than ever in the wireless market. It’s a poster child for telecom stocks that are being left behind.
At the time of publication, T stock earned a “D” rating in Portfolio Grader.
Mobile TeleSystems (MBT)
Mobil’nye Telesistemy PAO — or MTS — is Russia’s biggest wireless carrier. Like many telecom stocks, this company has also expanded from its core business into areas like media streaming and even online banking.
In its latest quarter, MTS was showing positive signs, including revenue up 10.6% year-over-year. The company also upgraded its full-year revenue guidance to high single-digit growth.
However, MTS is only just beginning to roll out 5G cellular, a project that will be very capital-intensive for years to come. In addition, MBT stock has been a non-performer for ages. It’s up just 3% so far in 2021. After dropping precipitously in 2014 (shedding two thirds of its value during that year) MBT has basically gone no-where since.
The current Portfolio Grader rating for MBT stock is “D.”
Telecom Stocks to Leave Behind: Orange (ORAN)
Orange is a well-known multinational telecom company based in France. Investment analysts generally have a positive take on the company. Those polled by CNN Business rate ORAN stock as a consensus “Buy.”
Why is Orange on a list of telecom stocks that risk being left behind?
ORAN stock has been testing investors. It’s subject to wild swings, but ultimately barely moved the needle between 2014 and 2020. ORAN had yet to fully recover from the 2020 covid-19 induced stock market crash and is currently down 17% from its pre-crash value. It’s also down about 6% so far in 2021. That’s not the kind of performance that would make ORAN a recommendation in a growth stock portfolio.
ORAN stock was rated “D” in Portfolio Grader at the time of publication.
Telephone and Data Systems (TDS)
Telephone and Data Systems (better known as TDS) is an American telecom that provides wireless, broadband, TV and hosted IT services. It’s perhaps best known for its USCellular subsidiary (the country’s fourth largest wireless carrier), and TDS Telecom (its division for high speed home internet and phone services).
TDS is facing big infrastructure expenditures for TDS Telecom, which is busy upgrading connections to fiber. In its second quarter earnings report, the company estimated that full-year capital expenditures will be between $425 million and $475 million. To help pay for those costs, in August the company announced a new share offering.
TDS stock was worth nearly $38 at the start of 2019, but is currently trading for just under $20.
The most recent rating for TDS stock in Portfolio Grader is “F.”
Telecom Stocks to Leave Behind: USCellular (USM)
USCellular joins parent company TDS on this list of telecom stocks that are getting left behind. Like TDS, USCellular is facing large capital expenditures. As of Q2 the company was still in the testing stage for 5G, but is expecting to spend between $775 million and $875 million this year as it works to modernize its network.
The telecom is in a difficult position. Its subscriber base has been shrinking over the past decade and it has to spend big to stay competitive. At the same time, the competition is consolidating and getting bigger. Adding to the challenge, USCellular customer satisfaction dropped considerably starting in 2019 and it now places well below other American wireless carriers.
USM stock had been showing signs of life since mid-2018, but it plummeted during 2019. At this point, despite a surge in the early summer, USM is down nearly 8% over the past 12 months.
At the time of publication, the Portfolio Grader rating for USM stock is “F.”
Verizon (VZ)
Verizon is the largest U.S. wireless carrier. Its total wireless subscriber count topped 121 million, as of June. However, staying on top will be a battle. Its newly consolidated second place competitor is “wiping the floor” with Verizon’s 5G service.
Verizon says 20% of its subscribers are now on 5G, however it’s spending big to get them there. The company is projecting capital expenditures to be between $17.5 billion and $18.5 billion in 2021. Having a 5G network that fares so poorly against the competition despite the huge expenditures is not a great sign.
VZ stock had been in growth mode since 2010, but it more or less plateaued in 2018. Over the past 12 months, it’s down over 8%. That’s not a great picture and it could well get worse as the fight for the number one position ramps up.
I’m not the only one who thinks you should avoid Verizon. The 27 investment analysts tracked by the Wall Street Journal have VZ stock rated as a consensus “Hold.”
VZ stock currently scores a “D” rating in Portfolio Grader.
Telecom Stocks to Leave Behind: Vonage (VG)
Finally, we come to Vonage. This company got its start providing low-cost, internet-based voice over IP (VoIP) residential telephone services. That’s becoming a tough sell when smartphones, social media services, and smart speaker offer the same thing — for free.
Vonage’s Business Cloud system integrates key services like voice, text, video conferencing and collaboration tools in a single suite. There is huge competition in the space from much larger companies. The pandemic, with its ramping up of remote work, only intensified the competition.
Vonage shares have surged several times over the past few years only to drop rapidly. We’re in the midst of another surge right now (VG stock is up 40% over the past 12 months). If it follows the pattern of the past five years, VG may be due for a correction. Besides, the focus on past-its-prime VoIP phone service and its vulnerability to much bigger competition in the business communications/collaboration space leaves Vonage at risk.
VG stock was rated as “D” in Portfolio Grader at the time of publication.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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