There are many indicators I use when analyzing a stock as one single aspect never fully gives the whole picture. So, one aspect I look at is recent insider activity as those are the people that have the best point of view in the company and if they're putting more of their hard earned money into their respective company that is a great sign. Another aspect I look at is unusual option activity since options are one of the best tools for leverage and hence if a stock is seeing massive leverage in either direction, some big event is likely to occur soon. A third indicator I look for is relatively cheap stocks such as I mentioned here, which are trading at a discount to their peers, have outsized dividend yields, a fantastic balance sheet, and/or some hidden value that is disguised in their financial statements. Therefore, I applied these strategies into the telecommunications sector and found some stocks below that offer some compelling value.
Verizon Communications (NYSE:VZ) provides communication services through two segments, Domestic Wireless and Wireline. The stock has attractive valuations at 15x trailing and forward P/E, 1x P/S, very large FCF of approximately $17B this past year, and a very nice 5.2% consistently growing dividend yield. In this very low rate environment and with the dividend likely to continue to be raised with such strong FCF, I think VZ is a buy. As of last quarter, institutions owned 54% of all shares
AT&T (NYSE:T), together with its subsidiaries, provides telecommunication services to consumers, businesses and other service providers worldwide. The stock has cheap valuations at a trailing 15x P/E, 12x forward P/E, 1.4x P/S, FCF of approximately $15.5B this past year, and a dividend yield near 6%. The stock has been depressed of late due largely to the regulatory uncertainty of its proposed merger with T-Mobile, but I think the fear is over-blown and the very strong FCF should allow the company to continue raising the dividend in the near future. As of last quarter, institutions owned 58% of all shares.
Sprint Nextel (NYSE:S), through its subsidiaries, offers wireless and wireline communications products and services to individual consumers, businesses, government subscribers, and resellers predominately in the United States. The stock has been volatile of late as there are questions regarding the big $20B commitment in order for it to sell the iPhone. However, the recent fall has brought some compelling valuations as it now trades at .6x P/B, .7x EV/S, .2x P/S, and had approximately $3B in FCF this past year. The stock doesn't pay a dividend, which is discouraging, but is trading at pretty cheap valuations and I think makes for a nice speculative buy. As of last quarter, institutions owned a very large 87% of all shares.
MetroPCS Communications (PCS), a wireless telecommunications carrier, together with its subsidiaries, provides wireless broadband mobile services in the United States. The stock got hammered after its last earnings report and still hasn't recovered, but nonetheless has compelling valuations trading at a trailing 14x P/E, 9x forward P/E, .4x PEG, .7x P/S, 4.6x EV/EBITDA, and 1.1x P/B. I think the stock has come down more than enough from that last earnings disappointment and can move nicely higher from here. As of last quarter, institutions owned a large 73% of all shares.
Clearwire (CLWR) provides wireless broadband services. The stock has been volatile of late as there continues to be doubts about its viability. The stock performance has been abysmal though, leading the stock to have tempting valuations of .1x PEG, .5x P/S, .6x P/B, while some recent insider buying, as I brought up here, is encouraging. However, the company burned through an enormous $4B this past year and still has a massive $4B debt load. The balance sheet isn't pretty and I'm not quite convinced on the company yet, but with such low expectations, any hint of good news will send the stock soaring. As of last quarter, institutions owned an large 74% of all shares, and this is definitely the most speculative buy.
LM Ericsson Telephone (NASDAQ:ERIC) provides communications equipment, professional services, and multimedia solutions to mobile and fixed networks operators worldwide. This Swedish giant has seen better days, but with the stock trading near lows, the valuations look compelling at a trailing 14x P/E, 11x forward P/E, 1x P/S and PEG, .8x EV/S, strong FCF this past year of just over $3.5B, and respectable 3.4% dividend yield. I think this makes for a nice international holding stock.
Vodafone Group (NASDAQ:VOD) provides mobile telecommunication services worldwide. The company also owns 45% of Verizon Wireless with VZ owning the remaining 55%. At a trailing 13x P/E, 9x forward P/E, 1x P/B, 1.9x P/S, very healthy FCF in excess of $12B this past year, along with perhaps most importantly the very nice 7.8% dividend yield, I'd be a buyer of VOD at these levels. Moreover, since this is based in the United Kingdom, American investors don't need to pay the 25% foreign withholding tax per a treaty many decades ago further juicing returns.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.