Wireless Conquers All

 | Oct 17, 2013 | 6:15 PM EDT  | Comments
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A few days ago, The New York Times ran a story titled, "On a New Jersey Islet, Twilight of the Landline." It was about how the landlines to the island community of Mantoloking were destroyed by Hurricane Sandy and Verizon (VZ) has decided that replacing these traditional telephone lines is too expensive.

Instead, it announced it was installing a wireless service. The article goes on to predict, "(t)he traditional landline is not expected to last the decade in a country where nearly 40 percent of households use only wireless phones." Today, fewer than 10% of households have only a landline phone.

Wireless is no longer in a period of ascendency. It has conquered the landline and, as a result, wireless providers are riding the airwaves to new heights. Recent activity in the wireless industry reflects its financial strength.

Verizon just announced third-quarter results where profits increased by 40%. In September, the company entered into an agreement to buy Vodaphone's (VOD) 45% share of Verizon Wireless for $130 billion. Verizon Wireless is the country's largest and most profitable wireless carrier.

Within the last year T-Mobile (TMUS) bought MetroPCS (T-Mobile is 74% owned by Germany's largest phone company, Deutsche Telekom (DTEGY) and SoftBank, Japan's third-largest wireless carrier, paid $21.6 billion for a 72% controlling interest in Sprint (S), the third-largest U.S. wireless carrier.

Consolidation, improved profitability and a very desirable market make the major players in the wireless industry attractive investments. Keep in mind that the U.S. has only four nationwide wireless carriers: T-Mobile, Verizon, AT&T (T) and Sprint.

A decade ago, I automated the investment strategies of some of Wall Street's most acclaimed thinkers, which allows me to analyze stocks in ways similar to how these gurus analyze stocks. My James P. O'Shaughnessy-based strategy currently gives several wireless companies its highest rating. All of these companies have competitive advantages by being major players in an industry where it is virtually impossible for new players to enter. They sport well-established name brands and are financially well off or have parent companies that are.

To earn its highest rating, the O'Shaughnessy strategy requires a market cap greater than $1 billion, cash flow per share greater than the mean of the market's cash flow per share (which is currently $1.59), the number of shares outstanding total more than the market average (which is 617 million shares) and trailing 12-month sales that are 1.5 times greater than the market's trailing 12-month sales (which is $20.9 billion). Those companies that pass all of these tests are then measured by their dividend yield. The 50 companies with the highest yield earn the strategy's highest recommendation.

Here are the carriers that earn the O'Shaughnessy strategy's recommendation for value investors, along with their dividend yield. These are all companies worth adding to your portfolio.

  • Verizon (4.49%)
  • AT&T (5.26%)
  • Vodaphone (4.38%)
  • Deutsche Telekom (5.72%)

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