4 actions for smartphones and 5G


The major carriers may not be as sexy as the latest biotech or crytpo games, but with low valuations, recession-resistant companies, and high barriers to entry, plenty of long-term investors find these actions attractive. The continued growth in smartphone and data use and the shift to 5G networks are adding a bit of spice. Here 4 leading experts and contributors to MoneyShow.com offer an overview of the best bets in the telecommunications space.

Blue-chip companies that have stumbled badly – and are starting to recover – are the best stocks available to investors today. Nokia (NOK) is a new addition to our list of fallen angels. He has great potential which I think you should consider.

Nokia may be remembered by many investors for the popular cell phones they produced many years ago. The Finnish company has dominated the industry with innovative designs, reliability and ease of use.

Nokia has made the transition from analog phones to digital phones with ease. However, the company failed to adequately take the next big step towards smartphones with cameras, internet browsers and entertainment capabilities. As a result, Nokia’s products have practically disappeared from the cell phone market.

Nokia then followed a path that many companies take when they find themselves – and their products – obsolete. The company has decided to reinvent itself. Old managers and weak operations have been eliminated.

New blood was brought in to revitalize the business and took it in new directions. The new management quickly sold off Nokia’s mobile phone business and expanded into the much broader – and more profitable – field of telecommunications equipment.

Nokia is now a competitive player in the telecom equipment industry. After its initial struggles with 5G networks, the company appears to be on track for 2021 net sales to hit $ 25.6 million, with profit margins of 7-10%. Return on invested capital is expected to be between 10% and 15%. Last year, net sales were the same, but the profit margin was only 4%.

I think Nokia is another recovering Fallen Angel that you should consider for your long term accounts. We are early risers with the company. But this is the right place if, as I think it is, Nokia starts to recover.

US wireless network operator T-Mobile US Inc. (TMUS), the second-largest operator in the United States, has the first and largest 5G network nationwide, expected to reach more cities and towns in America than anyone else. Based in Bellevue, WA, it provides services through its subsidiaries and operates its flagship brands, T-Mobile, Metro by T-Mobile and Sprint

S
.

What’s wrong with 5G? It is ultra-fast (can run up to 100 times faster than 4G networks), low latency and will open the doors to a new generation of applications including virtual reality and likely allow more automated factories, speeding up thus potentially economic activity.

T-Mobile’s extended 5G reach covers 305 million people and 1.7 million square miles – more geography than Verizon

VZ
(VZ) and AT&T

T
(T) handsets – and its lightning-fast 5G capacity that covers 165 million people is expected to reach 200 million nationwide by the end of this year.

The company leads 5G in part thanks to its acquisition of Sprint last year (and other investments). About a third of Sprint’s customers have already moved to the T-Mobile network.

T-Mobile is said to have a huge 2-year lead in rolling out 5G over its competitors. It has also challenged Verizon and AT&T by branding itself as the “non-operator,” to eliminate long-term contracts, data coverage charges, subsidized phones and other inconveniences to consumers, as well as to offer l Free international roaming, streaming without data and SMS plans, unlimited calls and data.

T-Mobile will also soon launch a wireless home Internet service that could steal business from cable companies.

T-Mobile also won the gold medal – the # 1 ranking – in the JD Power 2021 US Wireless Customer Care Mobile Network Operator Performance study. It was the 22nd time that the company obtained the 1st place.

The second quarter saw record financial results, with total revenues of $ 20 billion (up 13% year-on-year, boosted by its merger with Sprint), service revenues of $ 14.5 billion (up 13% year-on-year). 10% year-over-year increase) and adjusted earnings which increased 765% to 78 cents per share from the prior year.

The company said it added 627,000 postpaid phone subscribers up from 253,000 a year earlier. Analysts had estimated 595,000 additions to postpaid telephone subscribers. T-Mobile had been the industry leader in subscriber additions to postpaid phones for several years. T-Mobile has repurchased outstanding shares reduced by 10.387% in the past 12 months.

Verizon Communications

VZ
(VZ) was the first to prove the potential of wireless 4G. So when rival T-Mobile United States (TMUS) appeared to be taking the lead in rolling out 5G, many believe the company has passed the torch of industry leadership.

This belief is reflected in Verizon’s heavily discounted multiple of 10.4 times expected earnings over the next 12 months versus 54.3 times for T-Mobile. But there are clear signs that the balance of power is shifting, as the longer-to-deploy version of Verizon’s 5G millimeter wave technology begins to reach critical mass.

The tipping point: Verizon’s widely accepted but very successful offerings for C-band spectrum earlier this year. Coupled with the optimization of the Fios broadband fiber network, this additional capacity once again enabled its network to rank among the top quality ratings of JPower and RootMetrics.

This is now translating into the adoption of 5G. Management estimates that 20% of its wireless customers are already using 5G devices that are mostly C-band compatible. And the company is seeing an acceleration in customer growth (1.7 million gross additions in the second. quarter), while reducing the churn rate to record levels and moving more users to unlimited data plans (69% of users at the end of the second quarter).

The result was the acceleration of second-quarter wireless revenue growth for the largest US provider to 5.4%, well above management’s previous forecast. And growth also extends to the business-to-business division (up 3.7%), which has been contracting for a long time, with the company now taking shares from its competitors.

These favorable trends have prompted management to raise its revenue growth forecast for the year 2021 by almost a percentage point and the midpoint of its earnings forecast ranges from $ 5.30 to $ 5.10. per share.

This is the biggest upward revision in some time. And there’s a good chance there will be more big boosts in-store, as Verizon expands 5G coverage, some estimates currently only reach 51% nationwide.

The closing of the $ 5 billion media division sale is a potential upward catalyst for the end of the year. The same applies to the approval by the regulators of the proposed purchase of America Movil’s (AMX) US TracFone prepaid unit.

But the bottom line is that Verizon is slowly but surely proving its business case. And the more the company presents itself as T-Mobile’s “hare” “turtle” in the 5G race, the greater the returns on investment will be for patient investors. Buy up to $ 65.

AT&T (T) has a competitive advantage due to its established position and immense scale; it is very difficult for a new telecommunications company to build a competitive scale network.

During the “Great Recession from 2007 to 2010, the company posted profits of $ 2.76, $ 2.16, $ 2.12 and $ 2.29. The company didn’t eclipse its pre-recession high on earnings through 2016, but the dividend continued to grow throughout the period. We expect AT&T to remain very profitable during tough times.

In the second quarter of 2021, AT&T generated revenue of $ 44.0 billion, up 7.6% from the second quarter of 2020. Communications segment revenue increased 6%, AT&T generating postpaid net additions of nearly $ 3 million for the quarter.

WarnerMedia’s revenue grew 31% year-over-year. Adjusted earnings per share (EPS) was $ 0.89, up from $ 0.83 in the prior quarter, up 7% year-over-year. AT&T ended the quarter with a net debt to EBITDA ratio of 3.15x.

AT&T announced the spin-off of several assets in a separate company called “New DIRECTV” which will own and operate DIRECTV, AT&T TV and U-verse video. AT&T will own 70% of the common shares. In May, AT&T announced an agreement to combine WarnerMedia with Discovery (DISK

DISCA
) to create a new global entertainment company, Warner Bros. Discovery.

We believe AT&T has new avenues for growth through its asset sales and mergers. By separating its media activities, AT&T intends to refocus on its core competencies.

After the Discovery transaction closes, the rest of AT&T’s business expects low single-digit revenue growth, single-digit Adjusted EPS growth and a net debt to EBITDA ratio of 2.6x. In addition, the company is well positioned to take advantage of the 5G deployment.

We expect AT&T to generate adjusted earnings per share of $ 3.20 in 2021. Based on that, the shares are currently trading at a price / earnings (P / E) ratio of 8.4. We view AT&T as undervalued, with a fair value P / E estimate of 11 times earnings, meaning valuation expansion could add 5.2% per annum to returns. Including the 7.6% dividend yield and the expected 3% EPS growth, this implies an annual total return of 14%.


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