As we prime ourselves to bid adieu to an eventful 2018, investors seek to review their portfolio to identify stocks that appear bruised and battered, but hold solid potential for a healthy ROI in 2019. Before we try to simulate this exercise ourselves for the telecom sector, let us delve a little deep into the overall performance of the outgoing year.
A Roller-Coaster Ride!
In the first half of 2018, the overall U.S. equity markets witnessed an uptrend as the Trump administration announced corporate tax cuts that boosted the cash flow and infused confidence for healthy capital investments. However, as the year progressed, the markets seemed to wipe out all the initial gains and went downhill in the second half due to a combination of several factors. These include volatility in oil prices, trade war with China, geopolitical conflict with North Korea and Iran, three interest hikes by Fed that make loans costlier for capital-intensive sectors, imposition of tariffs on various foreign countries to improve the U.S. balance of trade and a soft global economy.
Consequently, sectors that were more exposed to the vagaries of the market, witnessed a roller-coaster ride and recorded an unconvincing performance in 2018. The telecom sector was one of the leading casualties of such an insipid feat by the market. Some telecom firms bore the brunt of the trade war with China, while the overall industry growth remained sluggish. As growing U.S. protectionism dampened investor sentiment and affected the supply chain, several stocks moved south. However, as both the warring countries aim to resolve their differences with a 90-day truce to the trade war and resume negotiations, these stocks look poised to benefit from the improving market fundamentals.
We have used the Zacks Stock Screener to identify some stocks from the telecom sector. These stocks have declined in excess of 20% in 2018, yet possess either a Zacks Rank #1 (Strong Buy) or 2 (Buy) and have a VGM Score of B or better for a likely healthy ROI in 2019. You can see the complete list of today’s Zacks #1 Rank stocks here.
4 Possible Outperformers for 2019
Altice USA, Inc. (ATUS - Free Report) : Based in Long Island City, NY, Altice is one of the largest broadband communications and video services providers in the United States. While the firm has evolved from predominantly a provider of voice services into a diverse, competitive and interconnected service provider using terrestrial, satellite and wireless transmission systems, high operating costs and significant investments for 5G push have contracted margins. Furthermore, a highly volatile geopolitical scenario has put pressure on the stability of the business and adversely affected the operating model, with the stock declining 18.1% year to date.
However, Altice is on track with its five-year plan to build a FTTH (fiber-to-the-home) network and deploy its new home communications hub. The company believes that the FTTH network will be more resilient with reduced maintenance requirements, fewer service outages and lower power usage, which is likely to lead to further cost efficiencies. This network will allow Altice to satisfy demand for increasing speeds and support evolving technologies, such as the expected transition of mobile networks to 5G and enable it to capitalize on associated revenue-growth opportunities. Earnings for fiscal 2019 are likely to improve a colossal 967.9% year over year as the company rolls out enhanced data and services for its business customers. With a VGM Score of A, this Zacks Rank #1 stock seems a solid bet for 2019.
Mobile TeleSystems PJSC (MBT - Free Report) : Headquartered in Moscow, Russia, this Zacks Rank #2 stock offers voice and data transmission, Internet access and various value-added services, including Big Data, Internet of Things, cloud, financial, and e-commerce services through wireless and fixed lines. The firm was exposed to intense sector volatility due to geopolitical tensions with Ukraine, Turkmenistan and Armenia. The stock has tanked 31.1% year to date.
However, with a VGM Score of B and long-term earnings growth expectation of 10.4%, the stock looks set to script a turnaround in 2019. In addition, fiscal 2019 earnings are likely to improve a modest 15.3% year over year.
PLDT Inc. (PHI - Free Report) : Based in Makati City, the Philippines, PLDT offers cellular mobile, Internet broadband distribution, solutions and systems integration, satellite communications, and satellite information and messaging services. High capital expenditure to extend network infrastructure for mobile connectivity and cut-throat competition has forced the company to lower prices, leading to soft ARPU. The stock has declined 30.1% year to date.
However, with a VGM Score of B, this Zacks Rank #2 stock seems to be a promising bet for 2019 with a healthy dividend yield of 4.2%. While the United States is expected to maintain the momentum in LTE network growth over the near term, the major impetus is likely to come from the emerging markets. Governments in these countries are driving smart cities and IoT projects by providing financial aid and instituting preferential policies along with structural subsidies to boost next-generation high-speed broadband.
Turkcell Iletisim Hizmetleri A.S. (TKC - Free Report) : Headquartered in Istanbul, Turkey, this Zacks Rank #2 stock provides mobile telecommunication services for consumer, corporate, and wholesale customers. The stock has plunged 44.6% year to date as Turkey was embroiled in a political tussle with United States. After the Trump administration imposed financial sanctions on two Turkish officials as fallout for the two-year detention of pastor Andrew Brunson, Lira fell drastically and impacted the stock.
However, the relations between the two countries had thawed with the release of Brunson and the sanctions were lifted. The U.S. State Department has also notified Congress of a proposal to sell the Patriot air and missile defense system to this NATO ally, signaling a breakthrough in the relationship. With a VGM Score of B and a healthy dividend of 5.9%, this stock appears an enticing option for 2019.
As the equity markets aim to shake off the demons of 2018 driven by a resilient economy, a sneak peek at some possible outperformers backed by a solid Zacks Rank and a healthy return could be a great idea for investors. These telecom stocks seem to hold great promise for the future and are likely to reward shareholders generously.
In addition to the stocks discussed above, would you like to know about our 10 top tickers to buy and hold for the entirety of 2019?
These 10 are painstakingly handpicked from over 4,000 companies covered by the Zacks Rank. They are our primary picks poised to outperform in the year ahead. Be among the first to see the new Zacks Top 10 Stocks >>