The Future of These Communication Stocks

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Includes: AAPL, CTL, EGHT, GOOG, LVLT, S, T, VZ
by: Brian Nichols

Most industries have seen similar loss in comparison to the S&P during this downtrend. The market sell-off is a result of mass panic which means that no particular sector has news to validate the drop in price. Some sectors have seen more in loss such as financials and Capital Goods. However some sectors have thrived and outperformed the S&P such as the Services sector. Within the services sector the communications services industry that has outperformed the S&P during a month period.

The communications services have seen a one month loss of 5.15% in comparison to the S&P 12%. Companies within this industry offer services such as wireless phone, broadband, cloud-based, and even digital TV. The large companies of this industry offer many services which are growing on a global scale. Therefore many of these companies have seen mild loss in comparison to other sectors within the market. However, several companies within this industry have underperformed during the last month. Below are 6 companies that have underperformed the industry for various reasons. I believe that some are a strong buy others are sells, while a few have great potential.

Verizon (NYSE:VZ) and AT&T (NYSE:T), which benefit from the innovations of companies such as Google (NASDAQ:GOOG) and Apple (NASDAQ:AAPL) offer services that are almost a must-have in today's society. The traditional mobile phone is near extinct as the evolution of the smart phone has brought about a fully interactive device where the benefits are limitless. With both companies having yields in the area of 6%, I believe these two companies are a great investment at current prices.

Both companies have seen a 7% loss during the last month as investors have sold in panic over turmoil within the markets. This will offer investors a good opportunity to buy cheap shares and take advantage of a high dividend. These companies are growing and adding new services such as TV, which could add new dimensions to the company. Both T and VZ have large market caps among the largest within the industry and are trading with modest price to earning ratios. I consider these companies a buy in this economy as both have a solid amount of income and assets in comparison to debt and benefit from the innovations of other companies along with innovating themselves.

Centurylink, Inc. (NYSE:CTL) has posted a loss of nearly 13% during the last month. This loss was in part due to the sell off in the market and an earnings report which told a tale of two sides. The 2nd quarter results announced net income that decreased and revenue that increased. The company addressed the net income issue by speaking of the Quest acquisition and other non cash accounting charges. The company announced revenue of $4.41 billion an increase from $1.77 billion year over year.

I believe Centurylink is presenting a perfect buying opportunity. The company has completed several mergers and acquisitions which show their desire to grow through acquisitions. The company is trading with a P/E under 15 and has a dividend yield of 8.44. Since 2008 the company has increased revenue by at least $2 billion each year. The company is on track to deliver another year with the same level of growth. This stock is a long term investment since the company is likely to continue spending money therefore the EPS will most likely remain at current levels. The company is growing with a business plan that continues to increase revenue. Net Income and EPS can easily increase by simply spending less money, Centurylink could accomplish this by not making new acquisitions. The company has a $20.6 billion market cap and continues to make moves for future growth. At these low prices the company is rewarding it's patient investors with a great dividend and I have no doubt that at some point the company will spend less and post incredible net income.

Sprint Nextel Corporation (NYSE:S) has returned a 43% loss during the last month among the worst performance within the industry. This loss was in part due to market panic but has fundamental reasons to validate the reaction. The company announced second quarter results which show a wide margin of loss. The company has demonstrated a failure to improve financially posting more loss each year since 2008. Sprint has seen assets decrease over the last 4 years yet keeps long term debt in the same range. I believe the company's operations revolve around the idea of removing assets to keep debt from increasing to cover the true effect of a company that cannot produce a profit. This concept or strategy may work for a while but eventually will cost the company. With AT&T and Verizon expanding operations and Sprint seeing no income from Apple's success I believe the stock will fall further. After looking over the income statement's and balance sheet I do not see how the company can create value that exceeds the market cap.

Level 3 Communications, Inc. (NASDAQ:LVLT) has lost 25% of its value throughout the last month. The company announced earnings on July 27 which showed, what I consider, several positive areas. The company has continued to show improvements in revenue and is making efforts to improve margins. However what worries me is company's inability to post positive net income for even one quarter. The company also has a much higher debt to assets ratio than I like to see. Fundamentally this company is everything investors are taught to stay away from.

Level 3 Communications was trading near 52 week highs before the economic downtrend began. One reason the stock has traded this well despite fundamentals is the potential. The company is innovating and many believe the acquisition on Global Crossing will result in profitability. The acquisition will bring several services to LVLT such as cloud computing and data storage. Regardless of these developments and the potential future I have to trade on what I know and this company has not posted any profit. The company could easily become one of the top corporations within the industry but at this point I will not buy in fear that more loss could easily come.

8x8, Inc. (NASDAQ:EGHT) is a small cap stock that has lost 32% of its value during the last month. This loss is related to the market sell off as the company released strong earnings which indicate more growth. After losing 32% of its market cap the company has still posted gains over 160% during the last year. The gains are a result of investors seeing long term potential within this company whose future looks very bright. The company is a provider of business communication and cloud based solutions. In July the company announced a new cloud - based video conferencing service which will allow up to 20 participants to join a conference from any location. With cloud services being used more everyday this service is sure to be a useful tool for companies who administer conference calls on a daily basis. Services such as this reflect the company's business and have investors excited about the future. With a market cap of only $223 million I believe this stock is a buy and will add to the 800% gain the company has seen since January of 2009.

Each of these six companies have underperformed the communications services industry during the last month. In this industry only the most innovating companies will prosper. With the industry's global use expanding these companies have the opportunity to see large gains. After experiencing the largest loss since the recession of 2008 the communications services industry has proved to hold strong against the downtrend. With each of these companies underperforming investors much decide if now is a good time to buy or if more losses are to be expected.

Disclosure: I am long T, EGHT.