Buy This, Not That: Telecom Stocks Are Sending Mixed Signals

Shah Gilani|June 12, 2024

In this week’s Buy This, Not That, we’re looking at some big players (and a few surprises) in the telecom space.

Telecom offers growth… value… and even some strong opportunities for income. There’s a reason, after all, why AT&T (T) is one of the most widely owned American stocks.

But not all telecoms are created equal, as you’ll quickly see…

Some of these companies pay decent yields… but I wouldn’t touch them. Others offer no yield at all… but they look like great speculative buys.

You’ll have to watch today’s episode to see which is which.

Click on the thumbnail below to dive in.

TRANSCRIPT

Hey, everybody. Shah Gilani here with your weekly BTNT as in “Buy This, Not That.” Gonna cover telecom companies. We know it’s mostly telecom being mobile, but some of these carriers do things, but I’m lumping them all together. So let’s take it to the park. First up is the big boy, AT&T, symbol T for the old telephone. Now, a lot of interesting things about telephone.

T is probably one of the most widely held stocks in America.

60% of its outstanding shares are held by institutions. So that means that 40% is held by retail, mom and pops, investors like you and me. Guess what? That’s pretty cool. And the reason is that AT&T has always had a very good dividend yield, and it still does. I’ll get to that.

But I won’t sugarcoat it.

It’s a buy.

It’s a buy because even though it’s at its recent highs, $18.45, it’s creating around $17 and change, touching on $18. The recent highs were $17.84 on an intraday basis, closed at $18.28. So that’s a recent high for telephone – for AT&T, and I still like it here because of the dividend yield.

This is the big boy. It’s $128 billion market cap, $122 billion in revenue.

Profit margin, 11.13%. That’s solid. Makes plenty of money. Net income available to common shareholders, my favorite measure because that tells you, especially if you’re looking for a dividend payout, whether or not they have enough money to pay the dividend and how much of that net income to common shareholders they are using to pay the dividend. In AT&T’s case, they use about 60% of it to pay the dividend. So the yield, 6.22%.

Nothing to sneeze at. So, yeah, can T go higher? Yes. It can. But I like it for the dividend, and I like it for the fact that it can go higher.

Yes. I’d buy it for the dividend. Look. The lows in July of 2023, $13.34.

If you want to buy more down there, if it goes down there, your yield would then be 8.19% on the stock that you buy down there, if it falls down there. So I don’t mind buying this one. If you wanna buy stock for income, this is a pretty good one, people. So Telephone, T, it’s a buy.

Next up is T-Mobile.

We’re talking $211 billion market cap, revenue $78 billion, profit margin 11.15%, very similar to AT&T.

Got a piddling dividend. 1.46% yields. It’s not worth the dividend. So right off the bat, I’m gonna say no. Trading at 179 bucks. Yeah.

I like the earnings growth, which have been pretty solid at, year over year earnings growth has been 22%, which is pretty good, while AT&T has actually been negative.

But I don’t know why I wouldn’t buy this for a capital appreciation. There’s plenty of other stocks where I would look for appreciation than in T-Mobile, symbol TMUS. So, no, it’s not a buy. Because if you don’t have a decent yield on it and you’re struggling for some appreciation, not worth it to me.

Besides, it’s looking very overwhelming. That’s not the place to put your money. So TMUS, T-Mobile, no. Not a buy.

Next up, Verizon. $170 billion market cap, $134 billion in revenue. Yeah. Understand how much money these companies are bringing in in revenue. It’s staggering. Profit margin, 8.44%. It’s got a pretty good looking yield, 6.58%.

But be careful because they pay out of their net income available to common shareholders.

99-plus percent goes to pay the dividend. That means there’s really nothing left to go and grow the company and do other things that they wanna do because they they don’t have anything left there spending it all on the dividend. Now if the dividend gets cut, stock’s gonna get hit. So as far as Verizon, VZ, goes, no.

But this was north of 60 bucks. He’s trading around $40 and change. That was north of 60 bucks in 2020. It fell to a low of $31. Like I said, it’s just just north of $40 a share now.

What’s the point? You know, you’re not gonna speculate on the stock. It’s not gonna . It’s a telecom company. So with a very good looking yield that could get cut, it’s not worth it.

It’s too dangerous. So as far as Verizon and VZ goes, no. It’s not a buy.

Next up, I’m gonna go a little bit overseas.

Vodafone, the ADR for Vodafone.

London, Europe, big carrier over, in Europe.

VOD is the ADR symbol trading at $8.89, thereabouts.

Yeah. It looks cheap because it’s down from $20 in 2019.

And the dividend looks crazy good, 10.74%. But talk about payout ratio, it’s at 200%. So in other words, everything, all of the net income available to common shareholders that goes to pay the dividend, they need 100% more than they have to pay their dividend, so it’s gonna get cut. So why would you buy Vodafone if the dividend’s gonna be cut because the stock will get hit?

Maybe they don’t think it’s hit hard enough. Maybe it’s worth to buy somewhere down lower, but I wouldn’t bother to, it’s volatile. It’s tough. It’s just not it’s a crazy stock.

It’s maybe a good stock to trade, but it’s not.

Speaking of Europe, Orange. Now Orange is huge in Europe. The ADR symbol is ORAN.

Now the Orange ADR is trading around $10, kinda like Vodafone, looks cheap because it’s come down a lot. It may be added slow, but the dividend is all over the place on this one. It’s just not worth it.

Orange and Vodafone, they’re just not worth it, period.

So, no, don’t go there.

Go to Europe, but don’t go to Orange and don’t go to Vodafone.

Last but not least, Gogo.

Gogo Inc. The symbol is GOGO. They’re aviation communication. So you want internet connection to check your emails and stuff on a plane, It’s Gogo.

That’s what they provide. This is broadband to the aviation industry and all kinds of other aspects untended to, what broadband means and how, aviation industry gets it, where they get it from, and a lot of it they get from Gogo.

Gogo, I actually like this stock. It’s actually a buy. It’s a speculative buy here. No dividend.

But this is swinging around $9.76 right now, thereabouts. So the low is $8.12. So on a speculative basis, if you bought it here, why wouldn’t you wanna buy an unexpected basis? Because well, if it goes lower, the recent low is $8.12.

That’s about 18% lower. You might wanna pick up some more there. At least be confident that if you bought it and it went down, maybe you would average down. But I don’t know that it’s gonna go down because, to me, it looks like it could just about see a golden cross where the 50-day moves above the 200-day, in which case the stock could go to $15.

So, again, Gogo trading in $9.76 could go to $15 if we get that nice golden cross.

It does well. This is a $1.23 billion market cap company, $403 million in revenue, profit margin. You ready for this? 38.61%.

Yes. Profitable for sure. Doesn’t have a dividend, like I said.

And quarterly earnings growth, up year over year, 49%. So, yeah, GOGO, yes. It’s a speculative buy. I like it.

I think if we get a golden cross here, the stock could get to fifteen. If it gets to fifteen, it could go knock on on $18, in which case, you have yourself a nice little run. So, yeah, wanna have some fun? “Gogo” with it.

That’s it. I’ll catch you guys next week. Cheers.