HPT vs. HCP: Which Stock Should Value Investors Buy Now?
The global telecommunications industry is witnessing rapid technological improvement. 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. The telecommunications industry benefits from an improving global economy, leading to an optimistic macro-outlook. 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 sustain 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. Consequently, stocks carrying strong growth potential are lucrative investments.
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%.
Asia and Latin American regions are home to a large population of young and tech savvy individuals which represent strong growth prospects for latest telecom products. These “millennials”, are the key drivers for growth of Internet-based applications, e-commerce and mobile-transaction related software and devices. As this group will comprise 75% of the workforce by 2025, emerging markets of Asia and Latin America will surely become a long-term investment bet for telecom giants.
Robust Government Impetus
Massive government expenditures undertaken by the Asian and Latin American governments such as structural subsidies for wireless infrastructure in China and India have been a boon to telecom service providers. In fact, developmental projects taken up by several countries in these regions resulted in significant expansion of nationwide 4G LTE network.
The LTE network has the highest penetration rate of 90.5% in the North American region. Both Western Europe region and Oceania, Eastern and South-eastern Asia region have a LTE penetration rate of 54%. In the Latin American and Caribbean region, LTE market share has more than doubled year-over-year to 23% in 2017. This figure is projected to grow 28% by the end of this year and further to 59% in 2021.
In Asia, several governments are pushing for smart cities and IoT (Internet-of-Things) projects by providing financial aid and instituting preferential policies. These governments are providing structural subsidies to boost next-generation high-speed broadband. Fiber-to-the-home construction in various Asia-Pacific countries is accelerating, which has resulted in significant increases in users covered and a continuously improving fixed broadband along with fixed-mobile broadband.
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 operating in Asia and Latin America with strong growth potential and a favorable Zacks Rank. However, picking winning stocks can be a difficult task.
This is where our VGM score comes in handy. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score.
We narrowed down our choice to four stocks carrying a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a good VGM Score of either A or B.
Chart below shows the price performance of our four picks in last three months.
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 has a VGM Score of A.
TIM Paerticipacoes has expected earnings growth of 27.5% for current year. The Zacks Consensus Estimate for the current year has improved by 10.9% over the last 60 days. The stock sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Ceragon Networks Ltd. CRNT: Based in Tel Aviv, Israel, Ceragon Networks is a leading provider of high-capacity wireless backhaul solutions for mobile and fixed wireless operators, enterprises and government organizations. It has a VGM Score of A.
Ceragon Networks has expected earnings growth of 5.3% for current year. The Zacks Consensus Estimate for the current year has improved by 11.1% over the last 60 days. The stock carries a Zacks Rank #2.
NTT DOCOMO Inc. NTT: Based in Tokyo, Japan, NTT DOCOMO is the one of the major mobile communications company worldwide. The company provides a wide variety of leading-edge mobile multimedia services. It has a VGM Score of A.
NTT DOCOMO has expected earnings growth of 16.7% for current year. The Zacks Consensus Estimate for the current year has improved by 3.3% over the last 60 days. The stock carries a Zacks Rank #2.
Orange S.A. ORAN: Based in Paris, France, it offers a range of fixed and mobile telecommunications, data transmission, Internet and multimedia, and other value-added services to consumers and businesses worldwide, especially in Latin America and Asia.
Orange has expected earnings growth of 95.7% for current year. The Zacks Consensus Estimate for the current year has improved by 18.1% over the last 60 days. The stock carries a Zacks Rank #2.
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