The Federal Reserve continues its war on inflation.
In a widely watched speech Friday at Jackson Hole, Fed chair Jerome Powell warned viewers that there was still far more work to do. Astute investors are picking up these soft landing telecom stocks as a result.
That’s because as the Fed continues to make credit more expensive, it is putting intense pressure on the economy. Mortgage rates are hitting heights not seen since the turn of the century. Various metrics such as retail sales and the auto market are showing strain. And with student debt payments recommencing, the consumer will take another hit ahead of the holiday shopping season.
Increasingly, people are starting to wonder about the possibility of a market crash. While we may not have a crystal ball, risk is clearly increasing as the Fed doubles down on its hawkish monetary policy. Fortunately, these telecom stocks to buy should hold up just fine regardless of the economy’s direction.
Verizon Communications (VZ)
Verizon Communications (NYSE:VZ) is a steady blue-chip telecom. Income investors have long relied upon VZ stock for its outsized dividends. To that point, Verizon currently offers a most generous 7.8% dividend yield.
Verizon shares have fallen sharply over the past couple of years. That occurred partly because of problems at its chief rival, AT&T (NYSE:T). AT&T became the world’s most indebted company at one point while pursuing a profoundly misguided empire building approach. AT&T had to reverse course, divesting assets such as Time Warner while slashing its dividend to address its excessive debt.
Investors have feared the worst, and wondered if Verizon would also see a dividend cut. But, Verizon isn’t AT&T. Verizon’s profits have been stable; the company earned a tremendous $21 billion over the past 12 months. Shares trade at just seven times forward earnings.
Verizon has seen some headwinds from rising competition and a heavy capital investment cycle. However, management believes that it’s past the peak of its spending and costs will fall and cash flow rise in 2024. That makes shares a bargain ahead of this turn in the company’s trajectory.
Telus (TU)
Telus (NYSE:TU) is a leading Canadian telecom firm. It has nearly 10 million mobile phone subscribers and constitutes approximately 30% of the Canadian market.
The firm’s stock has sold off this year amid weakness in Telus’ international and non-telecom related businesses. The company has also laid off some employees as it seeks to optimize its cost structure.
However, this distracts from the strong results at Telus’ core business. The company added a net of 110,000 mobile customers last quarter, which is a huge number given the size of the total addressable Canadian market. Revenues are also set to grow roughly 10% for the full year. Despite the upbeat numbers, TU stock has slumped over the past year. This has pushed the dividend yield up to 6%.
Morningstar sees great value in TU stock today, ranking it with five stars. Its analyst, Matthew Dolgin, believes the stock is nearly 30% undervalued and is worth $24/share as compared to its current $17 price.
America Movil (AMX)
America Movil (NYSE:AMX) is the dominant telecom carrier in Mexico.
Built up by the famed billionaire Carlos Slim, America Movil was the one-time telephone monopoly in Mexico. The Mexican government eventually deregulated the industry, but America Movil remains the leader with more than 60% of both mobile phone and internet markets.
Mexico is currently enjoying an economic boom. In the shifting global economic landscape, Mexico is rapidly gaining space in manufacturing as companies exit China. In fact, Mexico surpassed China in volumes of U.S. trade earlier this year. This should lead to increased telecom business for both Mexican enterprises and its rising middle class consumers. Mexico also has favorable demographics with a large number of young adults who crave fast mobile internet access.
After a nearly decade-long bear market, Mexican equities are finally rallying once again. AMX stock is up 50% from its lows a few years ago but still roughly flat over the past decade. That leaves shares of the telecom giant a bargain at less than 12 times forward earnings.
On the date of publication, Ian Bezek held a long position in VZ stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
