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Top Wireless Companies Underperforming the Stock Market with Major Growth Ahead

Lee Jackson

Less than 10 years ago, just about everybody had a cell phone. However, at that point nobody had a smartphone. The smartphone revolution grew out of the ill-fated Palm idea for a personal digital assistant, or PDA. It has now exploded to the point where the smartphone is not only relatively inexpensive, it has become so ubiquitous that even children have them. The wireless industry literally has been forced to run constantly to keep up with the growing consumer demand for bandwidth, services and latency.

There is substantial concern among investors that wireless will enter a period of hypercompetition. The analysts at Oppenheimer do not share this concern. Nevertheless, it has caused the sector to underperform the market by 25% in the past six months, one of the steepest underperformances in its history. Investors have a rare opportunity to buy the top stocks in the wireless space at a discount, and this could mean big gains down the road. We have broken down Oppenheimer's stocks to buy by category.

Large Cap

AT&T Inc. (NYSE:T) announced Monday that it is rolling out an incredibly fast fiber Internet package to compete with a new offering from Google inc. (GOOG) called Google Fiber. The new AT&T service, which will be available to customers as early as December, will offer the ability to download as fast as 300 Mbps. Plus, subscribers will be able to get a free upgrade to the service when it begins. The Thomson/First Call estimate for the venerable carrier is $38, and investors are paid a stellar 5.3% dividend. AT&T closed Monday at $3.82.

Comcast Corp. (CMCSA) continues to dominate the cable business and may be poised in the near future to challenge the carriers with Wi-Fi literally everywhere for smartphone use. Comcast continues to be a top stock to own as it encompasses every aspect of media content and delivery. The consensus price target for the nation's largest cable company is $51. Investors receive a 1.7% dividend. The stock closed Monday at $45.12.

T-Mobile US Inc. (TMUS) has become a stock to buy at Oppenheimer. The analysts think the company can double service margins from current levels to the mid 30% range. The Oppenheimer price target is placed at $32 on the upgrade. The consensus target is $28.50. The stock closed Monday at $25.97.

Cloud Infrastructure

American Tower Corp. (AMT) recently expanded its footprint with a massive $4.8 billion purchase of MIP Tower Holdings. The company continues to expand, not only in the United States, but it has a significant presence in Mexico and South America. The consensus price target is placed at $90. Investors are paid a 1.5% dividend. American Tower closed Monday at $74.13.

Crown Castle International Corp. (CCI) is one of the companies vying for the purchase of AT&T’s wireless broadcast towers. When wireless service providers sell broadcast towers, they typically lease back space from tower operators so they can continue to offer their services without interruption. This is a win-win for the purchaser. The consensus price target for the stock is $86. Crown Castle closed Monday at $73.03.

Cloud Services

Akamai Technologies Inc. (AKAM) provides content delivery and cloud infrastructure services for accelerating and improving the delivery of content and applications over the Internet in the United States and internationally. It offers application and cloud performance services, solutions for digital media and software distribution and storage, Website optimization services, security tools, network operator solutions and other specialized Internet-based offerings. The consensus price target for this top stock to buy is $53.50. Akamai closed Monday at $51.70.

RigNet Inc. (RNET) is an oil field communication provider. The company provides upstream oil and gas industry (both offshore and onshore) with network-based services. RigNet, a small company with a market cap of $566 million and good growth prospects, started its business in 2001 and had an initial public offering in 2010. With the oil business exploding in the United States, this stock may be extremely undervalued and hold some of the highest upside potential. The consensus price target for the stock is $32.50, way below Monday’s closing price of $36.17.

With the new iPhones coming out at a much lower price, the signal that smartphone use will be priced for the masses is clear. The carriers are faced with the very good dilemma of having to provide service that has all the bells and whistles and also can be handled by their networks. The mere fact that this fast-growing sector has underperformed the overall market makes it an area for investors to consider for their portfolios.