As curtains fall on an eventful 2019, investors seek to review their portfolio to identify stocks that appear bruised and battered, but hold solid potential for a healthy ROI in 2020. Before we try to do the same for the telecom sector, let us delve a little deep into its overall performance in the outgoing year.
2019: The Year in Perspective
The telecom stocks witnessed a roller-coaster ride in 2019 as President Trump flip-flopped on the trade war. The industry faced a gamut of trade restrictions and tariffs that affected its supply-chain mechanism and dented profitability. The Sino-U.S. tariff war virtually led to intense technology warfare between the two superpowers of the global economy, forcing the industry to get polarized into two distinct halves, bringing an element of uncertainty within the rank and files of the telecom sector. After maintaining his usual tirade against the unfair trade practices by the China, Trump appeared intent to strike a deal on numerous occasions, only to backtrack. The on-again-off-again trade war skirmishes and its cascading effect on the bilateral trade sent confusing signals to the market that bore the brunt of the geopolitical crisis, leading to intense volatility.
The bone of contention stemmed from an innate desire to claim dominance in cutting-edge technologies and the next generation of wireless services as the industry remained on the cusp of 5G boom. Although both the United States and China were on equal footing for 5G readiness by mid-2019, the communist nation seemed to be inching ahead in the later stages of the year with large-scale deployment and commercialization.
However, the industry scripted a remarkable turnaround and witnessed an upward trajectory toward the end of the year, courtesy the last-minute “Phase One” trade deal between the United States and China. Although the two sides are yet to sign the agreement (which is likely to take place in January 2020), the partial trade accord represents a major breakthrough in the 21-month standoff between the world's two largest economies. The trade truce buoyed investor sentiments and propelled the industry to mirror broader equity market performance.
Screening Stocks
We have used the Zacks Stock Screener to identify some stocks from the telecom sector. These stocks have declined 8% or more in 2019, 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 2020. You can see the complete list of today’s Zacks #1 Rank stocks here.
4 Possible Outperformers for 2020
KT Corporation KT: Headquartered in Seongnam, South Korea, KT Corporation offers telecommunications services in Korea and internationally. While the firm has reportedly launched the world's first nationwide commercial 5G network on Apr 3, 2019, high operating costs and significant investments for 5G push have hurt margins. Furthermore, a highly volatile geopolitical scenario has adversely affected the operating model, with the stock declining 17.8% year to date.
However, the company is likely to roll out enhanced data and services for customers as it focuses on harnessing 5G capabilities. Its edge-cloud architecture has powered edge-computing telecom centers in major cities across South Korea, lowering 5G latency to a 5-millisecond level. The company has utilized network slicing to optimize the network for divergent services. KT Corporation has also reduced battery power consumption by minimizing unnecessary data transmission with a traffic optimization solution. With a VGM Score of A, this Zacks Rank #1 stock seems a solid bet for 2020.
SK Telecom Co., Ltd SKM: Headquartered in Seoul, South Korea, this Zacks Rank #2 stock offers voice and data transmission, Internet access and various value-added services, including Big Data, IoT, cloud, financial and e-commerce services through wireless and fixed lines. The firm was exposed to intense sector volatility due to geopolitical tensions with North Korea. The stock has declined 12.4% year to date.
However, with more than half of the market share and avant-garde solutions, the company is one of the leading telecom players in the country. SK Telecom is not only leading innovations in the field of mobile network, but is also creating unprecedented value in areas such as media, security and commerce. With a VGM Score of A, the stock looks set to script a turnaround in 2020.
PLDT Inc. PHI: 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 nearly 8% year to date.
However, with a VGM Score of A, this Zacks Rank #1 stock seems to be a promising bet for 2020 with a healthy dividend yield of 4.7%. 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.
Telia Company AB (publ) TLSNY: Headquartered in Solna, Sweden, this Zacks Rank #2 stock provides mobile telecommunication services for consumer, corporate, and wholesale customers in Sweden, Finland, Norway, Denmark, Lithuania, and Estonia. The stock has lost nearly 8% year to date as lower equipment margin due to copper dismantling and legacy pressure in Finland and legacy pressure and lower fiber installation revenues in Sweden dented profitability.
However, with evolving product mix and strong connectivity base driven by increased customer relevance, the company is likely to be the digital hub in the region. With a VGM Score of B and a healthy dividend of 4%, this stock appears an enticing option for 2020.
Moving Forward
As the equity markets aim to cash in on the longest bull run in the history 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.
Zacks Top 10 Stocks for 2020
In addition to the stocks discussed above, would you like to know about our 10 top tickers for the entirety of 2020?
These 10 are painstakingly hand-picked from over 4,000 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Start Your Access to the New Zacks Top 10 Stocks >>
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