With uncertainty building in the market, it may behoove investors to shift their attention toward undervalued telecom stocks to buy now. The communications industry often features companies that command reliable earnings, a byproduct of their exceptional relevance. Because connectivity is vital to economic success, both consumers and enterprises find ways to pay their bills.
Another factor that bolsters the narrative for undervalued telecom stocks to buy now is their passive income potential. While not every sector-related company pays out dividends to their shareholders, a great many do. With the consumer price index hitting 9.1% over the 12 months ended June 30, 2022, investors are looking for practical ways to mitigate inflation. Telecommunications present a viable channel.
Finally, if you have a long-term perspective, focusing on undervalued telecom stocks to buy now could yield significantly positive results later. Sure, some of these companies have encountered volatility amid troubling economic pressures. However, as a critical sector that undergirds the technologies of tomorrow, you often can’t go wrong with telecom-related investments.
| VZ | Verizon | $44.95 |
| BCE | BCE | $49.27 |
| AMT | American Tower | $272.19 |
| SKM | SK Telecom | $22.54 |
| TIMB | TIM | $12.21 |
| USM | US Cellular | $30.61 |
| RCI | Rogers Communications | $43.28 |
Undervalued Telecom Stocks: Verizon (VZ)
A multinational telecommunications conglomerate, Verizon (NYSE:VZ) is a major player in its industry. Under its Verizon Consumer Group, the telecom giant has 114.6 million wireless retail connections and 91.5 million postpaid connections. Under its business category, Verizon has 28.2 million retail connections and is the first and only carrier with mobile edge computing partnerships with all three major cloud providers.
Despite its enormous street cred, the company happens to be one of the undervalued telecom stocks to buy now. With a forward price-earnings ratio of 9 times, Verizon compares favorably to the industry median of 17.4. Further, it has excellent profitability metrics, including an operating margin of 23.7%, far superior to the 9.6% industry median.
On a year-to-date basis, VZ stock is down 14%. Still, for contrarian buyers, Verizon makes an intriguing case for itself. According to Dividend.com, the company has a forward yield of 5.7%, well above the communications sector’s average yield of 2.62%.
BCE (BCE)
Formerly known as Bell Canada Enterprises, BCE (NYSE:BCE) is Canada’s largest communications firm, leading the underlying industry in providing advanced broadband communications networks and services. BCE offers a wide range of solutions to individual customers, businesses and government agencies across its home market, including 4G LTE, 5G, and 5G+, Fiber Internet and TV.
Just recently, BCE delivered a solid earnings report for the second quarter, with a particular highlight being fiscal year 2022 operating revenue growth of 2.9% on a year-over-year basis. Management attributed the performance to a 3.8% increase in service revenue, reflecting robust wireless, residential internet, and media growth.
To be fair, BCE doesn’t offer the absolute best discount among undervalued telecom stocks to buy now. However, its strong operating margin of 23% ranks higher than 84% of its rivals. As well, the company command a forward yield of 5.9%, which may go a long way in mitigating the impact of soaring inflation.
Undervalued Telecom Stocks: American Tower (AMT)
Structured as a real estate investment trust (or REIT), American Tower (NYSE:AMT) is an owner and operator of wireless and broadcast communications infrastructure in several countries worldwide. Featuring a total footprint of 220,000 global sites, American Tower enjoys a significant presence in North America along with the compelling emerging markets of Latin America and Africa.
As with BCE above, AMT doesn’t provide the biggest discount among undervalued telecom stocks to buy now. However, before you brush this aside, there are some things to consider. For one, American Tower’s return on equity is nearly 49%, better than almost 97% of all other REITs. Second, its three-year EBITDA (earnings before interest, taxes, depreciation, and amortization) growth rate of 13% is significantly higher than the median 1.5% for REITs.
About the only glaring knock on American Tower is its forward yield of 2.11%. While a decent figure, it’s a bit under the 4.46% average of REITs. Still, with the relevance of its infrastructural offering, AMT is a reliable name to consider during these uncertain times.
SK Telecom (SKM)
A South Korean company, SK Telecom (NYSE:SKM) has admittedly seen better days, with shares down nearly 16% since the start of this year. Nevertheless, forward-looking investors may sense a discounted opportunity thanks to its viable home market. As the country shuts down its aging 2G networks and focuses on upgrading its infrastructure, SKM could be a natural beneficiary.
According to data from Global Monitor, by 2029, the majority of South Korea’s mobile connections will be on 5G. In addition, the rising adoption of internet of things (or IOT) should prove invaluable to SK Telecom’s ambitions. Even more enticing, SKM appears to be a worthy candidate among undervalued telecom stocks to buy now.
Against a basket of valuation metrics, SKM is considered modestly undervalued. Currently, the company sports a P/E ratio of 5.6 times, well under the industry median of 17 times. Further, it has a price-sales ratio of 0.71 times, which significantly undercuts the sector median of 1.59 times.
Finally, SKM features a forward yield of 2.1%. While it’s not the most generous rate, SKM is native to an exciting market.
Undervalued Telecom Stocks: TIM (TIMB)
A Brazilian telecom firm, TIM (NYSE:TIMB) provides mobile and fixed telephone services. Although shares have been choppy, TIM is one of the few securities that’s positive in the charts this year, up 2%. Further, recent news suggests that TIMB could continue making gains in the market.
A few days ago, the company disclosed that it expects to be able to monetize its 5G investments – especially in the prime 3.5GHz band – in 2023, which is when capital expenditures related to 4G should fall. According to TIM CEO Alberto Griselli, “We want to trigger a virtuous cycle whereby coverage, offer and terminals provide customers with a reason to migrate to 5G.”
From a discount-diving standpoint, TIMB is one of the more attractive undervalued telecom stocks to buy now. For instance, the company features a price-book ratio of 1.2 times, which is well below the industry median of 1.97. Moreover, TIM commands excellent profitability metrics, including a 16.7% net margin that’s conspicuously above the 5.9% industry median.
US Cellular (USM)
A mobile network operator, US Cellular (NYSE:USM) is currently down about 3% on a YTD basis. Nevertheless, its solid Q2 earnings report could see more investors putting USM on their radar.
According to an AP report, the company delivered earning per share of 25 cents on revenue of $1.03 billion. These figures beat covering analysts’ estimates, which called for an EPS of 23 cents against top-line sales of $1.02 billion.
Even better, a range of analytic tools implies that USM stock is modestly undervalued. Notably, the underlying company’s price-sales ratio and price-to-book ratio of 0.63 and 0.55 are considerably more favorable than their industry median metrics of 1.59 and 1.97, respectively.
Unfortunately, a significant knock against USM is that it doesn’t pay a dividend. However, given its history of popping substantially higher, speculators may want to consider having a go with USM.
Undervalued Telecom Stocks: Rogers Communications (RCI)
Probably the riskiest name among undervalued telecom stocks to buy now, Rogers Communications (NYSE:RCI) is reeling from an embarrassing circumstance. According to a Reuters report, Rogers suffered a massive outage that management blamed on a router malfunction after maintenance work. Per the article, the outage “shut banking, transport and government access for millions of people.”
Following that disaster, the company stated that it will invest the equivalent of $7.74 billion over the next three years in artificial intelligence, as well as more testing and oversight to prevent such an outage from occurring again. Despite the good gesture, investors apparently aren’t yet in a forgiving mood, with shares still caught in a downward trend.
Nevertheless, at some point, this situation will heal. Looking ahead, RCI stock is an undervalued opportunity with very strong profitability metrics. As well, the underlying company features a forward yield of 3.7%, a decent figure for those willing to pick up this discount in the open market.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.