Investing Topics: Telecom Stocks

Our best in class utilities and essential services companies proved their resilience in pandemic-riddled 2020.

I’ve been an adult volunteer for Scouting BSA since my oldest son entered Tiger Cubs almost 20 years ago. So I wasn’t going to pass up the opportunity to accompany my youngest to Philmont Scout Reservation in northern New Mexico earlier this month, my third and likely final trek to scouting’s paradise.

Unlike the highways my oldest son and I took on our cross-country journey in early June, there’s not a lot of connectivity in the backcountry. And I’d never have been able to stay off the grid were it not for the support of Elliott Gue, my partner of more than 8 years at Capitalist Times.

Nonetheless, as with the June trip, I picked up several investment insights I’d like to share with you now.

In the May 18 Alert “Hold AT&T for Now,” I advised “sticking with our shares until the immediate market reaction shakes out.” That remains my advice for four reasons.

There’s no doubt AT&T Inc (NYSE: T) faces some steep challenges in early 2021. Just days before the company announced Q1 earnings last week, a Wall Street Journal piece featured the views of a prominent bear under the headline “Is AT&T a Train Wreck?” 

The company’s Q1 numbers and updated guidance, however, paint a far different picture.

Exhaustive reviews, impossible public interest standards and no guarantee of eventual success: That’s the consensus outlook for mergers and acquisitions activity under the Biden Administration. Nonetheless, utility M&A is alive and well.

The results are in for the most expensive wireless spectrum auction in US history. The question for the Big Two is whether their huge outlay will produce the revenue and cash flow to be worth it.

What’s a well-run fiber broadband network worth these days?

The top two companies that dominate this essential service industry have combined market capitalization of $440 billion and annual revenue of $300 billion plus, but still trade for an average of just 10 times expected 2020 earnings. They clearly suffer from the burden of low expectations.

Chronic share underperformance, weak Q2 operating results and still-heavy debt raise the question - is it time to sell AT&T (NYSE: T)?

After a robust decade and a half following 1996 deregulation, large US telecom M&A had virtually evaporated. The exception: T-Mobile US’ (NSDQ: TMUS) merger with Sprint, which closed April 1, 2020.