Prospects for telecom companies, at least some of them, are looking as promising as the growth in cell-phone towers. I was reminded of this when I saw the results reported last week from Verizon (VZ). First-quarter earnings rose 17%, generated from particularly strong wireless growth (thanks, Apple (AAPL)!). Profits were $0.59 per share, up from $0.51 a year earlier and a shade better than the $0.58 that analysts expected. Revenue was up 4.6% to $28.2 billion, also a bit better than the $28.17 billion forecasted by analysts.
This is a good time to invest in telecom. Companies such as Verizon are doing well, and consumers are moving away from desktop and laptop computers to tablet computers and smartphones, and the demand for smartphones is making telecoms look, well, very smart.
The guru strategies I use to pick stocks, which are based on the writings of some of Wall Street's most successful strategists, are finding a number of telecom companies to recommend, including Verizon.
The strategy I base on James P. O'Shaughnessy's approach to investing gives a high rating to Verizon's huge market cap of $110 billion, very strong cash flow per share of $9.61, 2.8 billion shares outstanding and $112 billion in trailing 12-month sales. These variables are all tests a stock must pass before this strategy gives it a high grade. And among all the stocks that pass the previous tests, there is one more test. The strategy picks the top 50, on the basis on those that have the highest dividend yield. Verizon's 5.16% yield places it in this top-50 cohort.
Another telecom ringing bells with the gurus is U.S. Cellular (USM), the nation's sixth-largest wireless provider, which has 6.1 million customers in 26 states. Peter Lynch, one of history's most successful mutual fund managers, spelled out an investment strategy in his best seller, One Up on Wall Street, and that strategy, which I computerized years ago, gives high marks to U.S. Cellular. In particular, it likes the company's P/E/G ratio, which is price-to-earnings relative to growth. The maximum P/E/G allowed is 1.00, and U.S. Cellular's P/E/G is 0.88. This is a strong indication that investors are not overpaying for growth. The company also carries a reasonable amount of debt.
AT&T (T), the largest of the U.S. telecoms, is another O'Shaughnessy strategy favorite. AT&T's market cap is $183 billion, cash flow per share is $3.81, shares outstanding number 5.9 billion, and 12-month trailing sales are $127 billion. And AT&T provides a sky-high yield of 5.7%.
Since I reported on Verizon, I am glad to be able to also report on Vodafone (VOD), the giant British telecom that owns 45% of Verizon Wireless. The company says its customers number 371 million. The O'Shaughnessy strategy likes Vodafone, and that should come as no surprise if you've been paying attention, because this strategy likes high-yielding stocks, and telecoms tend to have high yields. The company's market cap is $136 billion, cash flow per share is $4.89, shares outstanding top 5 billion, and trailing 12-month sales are at $75 billion. And its yield is a solid 5.27%.
Former switchboard operators may not like such high-flying modern telecoms, but as the world goes wireless, these companies' prospects are strong, as well as their financial performance and yields.