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One of the key attributes of the telecommunications industry is that it is a major infrastructure requirement for both emerging and developed countries. Unprecedented growth in high-speed mobile Internet traffic, particularly with respect to wireless data and video, has transformed the industry into an ever evolving, inventive and keenly contested space.
The telecommunications industry benefits from an improving global economy, which makes the overall macro-outlook buoyant. Statista’s 2018 report On Global Telecom estimates that global telecom services revenues will reach around $1.5 trillion in 2019.
While telecom growth momentum is expected to be maintained in the United States over the near term, the major impetus is likely to come from the emerging markets of Asia-Pacific and the Latin American region. This is why it makes good sense to invest in those stocks which carry strong growth potential.
Global Economy Thriving
The World Bank estimates global economy to grow at 3.1% in 2018. Growth in emerging market and developing economies as a whole is likely to be 4.5%. The IMF projects that the global economy will grow by 3.9% in 2018-19. Emerging and developing Asia is likely to grow at 6.5%.
Huge government expenditures, including those on U.S. broadband infrastructure development program and similar structural subsidies in China and India, have been a boon to telecom service providers. This is likely to receive a further fillip given such a favorable economic scenario.
Telecom’s Momentum Likely to Continue
The major thrust for the telecommunications industry is coming from within the industry as a result of continuous network and product upgrade along with innovation by industry players. A growing global economy speeds up the demand for real-time voice, data, and video manifold. The escalation in demand has encouraged telecom service providers to undertake large network extensions while upgrading plans. The rising demand for technologically superior products has been a silver lining for the telecommunication industry in an otherwise tough environment.
Future Drivers of Telecom Industry
(1) 4G LTE Networks Thriving: Long-Term Evolution (LTE), the most sought after super-fast (4G) wireless communications technology, is fast gaining momentum. Following significant deployment of 4G LTE networks, LTE-A (Long-Term Evolution Advanced) wireless networks are gradually finding a solid foothold.
(2) Upcoming 5G Wireless Networks: According to a study commissioned by Qualcomm, fifth-generation (5G) wireless technology could result in global economic growth by $3 trillion cumulatively from 2020 to 2035. Several industry researchers hold that 5G network will provide a download speed of 1 Gbps (gigabit per second), which is 200 times the throughput of the currently available standard 4G LTE network.
(3) Internet of Things (IoT): Internet of Things, which enables any physical electronic device with a valid IP-address to transfer data seamlessly over a wireless network, is fast gaining market traction and bringing about fundamental changes in business models. Upcoming 5G mobile networks will be of utmost importance in management of exponential growth in IoT.
Given that the global economy is growing steadily, supported by strong data of various macro-indicators, many large wireless operators are likely to generate massive cash flows.
At this stage, we believe investors should choose telecom stocks which promise strong growth potential and carry a favourable Zacks Rank to cash in on future growth that 4G LTE and upcoming 5G network offers. We present four such stocks here.
The chart below shows the price performance of our four picks in last nine months compared with the industry.
TIM Participacoes S.A. TSU: Based in Rio de Janeiro, Brazil, TIM Participacoes is the largest GSM wireless service provider of Brazil, in terms of subscribers and revenues. It sports a Zacks Rank #1 (Strong Buy). The company expects earnings growth of 22.5% for current year. The Zacks Consensus Estimate for the current year has improved by 8% over the last 60 days.
SK Telecom Co. Ltd. SKM: Based in Seoul, South Korea, SK Telecom is the world's first commercial CDMA digital cellular service provider. The company expects earnings growth of 61.2% for current year. The Zacks Consensus Estimate for the current year has improved by 17.7% over the last 60 days. The stock flaunts a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Turkcell Iletisim Hizmetleri A.S. TKC: Based in Istanbul, Turkey, Turkcell is the leading provider of mobile communications services in Turkey. It carries a Zacks Rank #2 (Buy). The company expects earnings growth of 21.8% for current year. The Zacks Consensus Estimate for the current year has improved by 9.2% over the last 60 days.
Mobile TeleSystems OJSC MBT: Based in Moscow, Russia, Mobile TeleSystems operates integrated mobile communications worldwide. It carries a Zacks Rank #2. The company expects earnings growth of 35.9% for current year. The Zacks Consensus Estimate for the current year has improved by 8.2% over the last 60 days.
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SK Telecom Co., Ltd. (SKM) : Free Stock Analysis Report
TIM Participacoes S.A. (TSU) : Free Stock Analysis Report
Turkcell Iletisim Hizmetleri AS (TKC) : Free Stock Analysis Report
Mobile TeleSystems OJSC (MBT) : Free Stock Analysis Report
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