Telecommunication firms provide the services and technologies that enable fast and wide transmission of information across the globe. These include phone, radio, television, and internet services. With the growing importance of telecoms in our modern society, investors are finding more and more interest in the telecom sector. Whether you are a beginner or an experienced investor, this list provides you with the best telecom stocks to buy this year, as well as a discussion on what to look for when watching for the best telecom stocks.
Attributes of the best telecom stocks
In looking for the best telecom company to invest in, the qualities that you should watch for are the following:
● Strong free cash flows
After paying for its capital and operating expenditures, there should still be a substantial amount of cash left in the company that can go to improving the infrastructure of the telecom or increasing the dividends of the shareholders.
● Healthy debt-to-equity ratios
Debt is not always a bad thing, as long as it remains low in relation to the shareholder’s equity. Telecom companies that avoid high debt levels produce sufficient cash to cover payments and are far from becoming insolvent.
● Strategic holdings
Aside from producing strong free cash flow and good gross margins compared to other competitors, a telecom firm should also have other advantages, such as having strategic holdings. These companies could have rights to real property, innovative patents, and exclusive licenses, among others.
● Potential for growth
Innovations in the telecom sector, and the tech industry in general, move too fast. The best telecom stocks are in the companies that have good plans with foresight on the current and future trends of the industry.
Best Telecom Stocks in 2022
- AT&T, Inc. (T)
AT&T, previously the American Telephone and Telegraph Co., is a U.S.-based telecom and tech company. It attracts shareholders with its 5.7% dividend as of June 15. Just this year, AT&T’s stock is up 9% partly due to a spinoff of its assets in WarnerMedia to Warner Bros Discovery, Inc. This move jumpstarted the year for the company, considering that its stock was down over 16% in 2021.
- Verizon Communications Inc.
Verizon Communications (VZ) is the largest wireless telecom carrier in the country. It has not been significantly affected by the COVID-19 pandemic because households and businesses still found the need for cell and internet services.
The company pays a high 5.2% annualized dividend yield in a relatively low interest rate deal. Its cash flow has always exceeded its dividend payments because of its consistently high revenues. Verizon is one of the best telecom stocks because it has a health debt-to-equity ratio. It has maintained its debt at healthy levels.
- Frontier Communications Parent (FYBR)
Last year was one of the best years of Frontier Communications Parent, an American telecom company that provides high-speed fiber optic internet services. Frontier stocks have declined from last year’s high. The company’s stocks can be considered as the best telecom stock, regardless of the stock’s decline, because it still presented high profitability measures. Its price-to-sales ratio is at 0.92 which means that is currently being undervalued. However, you can wait for the tide to rise given that its gross profit margin is at 62.88%.
- Comcast (CMCSA)
Comcast is a pay-TV and an internet service provider in the U.S. It owns NBCUniversal, a media giant in the country. In 2018, Comcast acquired Sky, the largest pay-TV operator in Europe. This acquisition added a significant amount of debt to Comcast’ balance sheet. The company has been reducing its debt through its high margins from cable internet customers.
- American Tower (AMT)
When it comes to cell sites and towers, American Tower is the household name in the U.S. The company serves many locations locally and abroad, approximately 220,000 cell towers. This gives American Tower a strategic advantage amidst the rise of demand for data. American Tower already has the infrastructure that can accommodate a fast pace advancement in wireless connections. Because of this, American Tower serves as a landlord for mobile service by collecting rents through its hundreds of thousands of towers from AT&T and Verizon Communications.
American Tower is a real estate investment trust. This makes its stocks very attractive to investors because the company pays out most of its profits as dividends.
- Lumen Technologies Inc. (LUMN)
Previously known as CenturyLink, Lumen Technologies now include calling services, internet service, cloud connectivity, edge computing, and hybrid IT, among other telecom services. It has a total of 450,000 route miles of fiber that serve 37 states or 4.5 million broadband customers.
The company pays the highest dividend yield of 9.4% to its shareholders. However, its revenue has been declining since 2018. What makes the stock of Lumen Technologies attractive is its valuation, with it trading at a forward price-to-sales ratio of 0.64X.
- DISH Network Corporation (DISH)
DISH Network Corporation uses pay-TV and wireless connections to provide TV services to millions of Americans. Its stock has faced a decline of about 44% in 2022. This decline presents a huge opportunity for investors. Unlike Lumen Technologies, DISH Network Corporation experienced an increase in its net income in 2021. This shows that it can increase sales and maintain a positive, albeit weak free cash flow.
Conclusion
How and why you choose a specific telecom stock is an important question. First of all, it is best to understand that the telecom sector is a somewhat stable or conservative sector compared to the others. The best telecom stocks are usually from already big telecom companies. However, investing in a telecom stock requires a more thorough analysis of the balance sheet, dividend yield, and many other attributes of the company. Having a strong free cash flow, a healthy and manageable debt level, strategic holdings, and growth potential can determine the best telecom stocks in the market.
Disclaimer PSTO is not endorsing, nor advising investments in any of the above stocks, nor any other companies. This is a blog stating an opinion based on public research.
Investment Relations
Recent Comments