Wall Street Collapses but Verizon, T-Mobile, and AT&T Rise. Here’s Why
The stock market had a terrible end to the week, and very few companies were spared from the carnage. Three that were up are in the telecom industry and probably aren’t on your list of top stocks right now. But maybe they should be.
Despite the S&P 500 trading down 2.2% at 3 p.m. EDT, shares of Verizon (NYSE: VZ) have been up as much as 2.7%; AT&T (NYSE: T) was up 2.6%; and T-Mobile (NASDAQ: TMUS) was up 3.6% at its peak. The stocks are now essentially flat on the day, but that’s notable given the market sell-off overall.
Telecom saves the day
The reason wireless companies have held up well comes down to their stability and debt. These aren’t growth companies, but you can see below they’re about as stable as it gets (AT&T’s revenue decline was from the spin-off of Warner Bros.).
The downside has long been that the business relies on heavy capital expenditures to build out wireless networks, which require a lot of debt. As interest rates have gone up, that debt has become a bigger and bigger problem.
And that brings us to today. A weaker-than-expected jobs report this morning led the stock market to crash, but it also caused bonds to rise in value, which means bond yields fell. According to Bloomberg, the rate on 10-year U.S. government bonds was down 18 basis points on Friday and has fallen 64 basis points in the past month.
The 10-year rate is important because it’s a benchmark rate for many corporate bonds that companies would issue. Falling yields mean falling costs for the companies financing debt.
From headwind to tailwind
Rising rates were one of the biggest risks for telecom companies because they were eating up improving operating cash flow as the 5G buildout phase slowed and companies moved to a cash-extraction phase of the business cycle. If that headwind is now easing, it could become a tailwind as refinancing debt at lower rates becomes more cost-effective and cash can be returned to shareholders.
I also think the falling market has investors looking for “safe” stocks that may not be as susceptible to the whims of consumers or corporate spending as many companies. Despite not being growth stocks, these companies also aren’t likely to be the first thing consumers cancel if a recession does come.
Solid values in today’s market
Growth and AI have been the hot topics on the market over the past two years, but there are growth options to be found, and telecom is an attractive area for long-term investors.
Shares of Verizon trade for just a 15 times trailing price-to-earnings (P/E) multiple. The stock has a 6.5% dividend yield; AT&T has an 11 times P/E multiple and a 5.7% dividend yield; and T-Mobile has a 24 times P/E multiple with a 1.4% dividend yield.
These may not be the most-loved stocks in a rising market, but if the market falls and investors look for safer stocks, they could keep rising.
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Travis Hoium has positions in Verizon Communications. The Motley Fool recommends T-Mobile US and Verizon Communications. The Motley Fool has a disclosure policy.
Wall Street Collapses but Verizon, T-Mobile, and AT&T Rise. Here’s Why was originally published by The Motley Fool
