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Can Wireless Service Providers Sustain Bull Run in 2019?

After a disappointing 2017, the U.S. wireless service providers made a recovery in 2018. The need to remain connected is a human condition. An era of digitization and technology is essentially built on this need. It is here that telecommunications come to the fore as a necessary utility. With the U.S. wireless telecom industry continuously evolving, the companies in the league are fighting it out to stay abreast of competition.

Strong Wireless Market

With rapid growth in video and other bandwidth-intensive applications, the wireless industry participants are making considerable investments in LTE, broadband and fiber in order to provide additional capacity and ramp up Internet and wireless networks. The LTE network has the highest penetration rate of 91% in the North American region.

The impending 5G boom is likely to propel the wireless industry to newer heights. The success of 5G technology hinges on substantial investments to upgrade infrastructure in the core fiber backhaul network to support anticipated growth in data services.

Advantage of 5G Wireless Network

The United States is progressing well to lead the world in 5G — the next generation of wireless connectivity — which will enable faster speeds and low latency wireless broadband services.

Latency period of 5G data delivery will be in milliseconds. Further, 5G technology is designed to be more power efficient than any other standard wireless network available now. Consequently, 5G-enabled mobile devices are likely to last a lot longer than their 3G or 4G counterparts.

The rising demand for technologically superior products has been a silver lining for the telecom space in an otherwise tough environment. In this respect, the superfast 5G mobile networks will be of utmost necessity in managing the exponential growth of internet-connected devices, popularly known as Internet of Things (IoT).

Pro-Growth Measures

The two pro-growth agendas of President Trump, namely, significant cut in corporate tax and deregulation are major catalysts to the telecom industry. The corporate tax rate was lowered from 35% to 21%. Trump’s tax proposal will result in a huge windfall for telecom operators. The carriers can utilize this money for 5G network R&D and its deployment.

The previous administration under Barack Obama was strictly against further consolidation of the U.S. telecom industry. However, the FCC (Federal Communications Commission) under Trump’s presidency has given enough indications of its leniency compared with the Obama administration. The FCC is most likely to roll back a slew of stringent regulations of the previous regime. The FCC’s stance of being less restrictive will aid mergers and acquisitions.

Performance of Major Wireless Service providers

Year to date, stock price of six major wireless operators, Verizon Communications Inc. VZ, T-Mobile US Inc. TMUS, Sprint Corp. S, United States Cellular Corp. USM, CenturyLink Inc. CTL and Telephone and Data Systems Inc. TDS outperformed the benchmark S&P 500. AT&T Inc. T is the sole major wireless operator which has witnessed a decline so far in 2018. CenturyLink, Sprint and United States Cellular carry Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Bottom Line

A growing U.S. 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. Leveraging state-of-the-art communication network architectures, 5G is touted to be the primary catalyst for IoT. Wireless operators will thrive on 5G network in 2019.

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