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Even though a myriad of stocks were shot down in last year’s turbulent market, telecommunications proved to be one of the best ways to bulletproof your portfolio. Just ask Kevin M. Moore, the 35-year-old senior telecommunications analyst at BT Alex. Brown in Baltimore.
Over the past 18 months, the sector has been a hotbed of merger activity. Some of the more notable transactions have been AT&T’s acquisition of TeleCommunications Inc. (TCI), the huge cable gaint, and WorldCom’s purchase of MCI. “These companies are trying to make sure they’re ready for [emerging] competition and gain economies of scale and access to new technologies and markets,” asserts Moore.
In the next several years, the approximately $ 650 billion global telecommunications industry will continue to provide investors with prime buys. Moreover, it represents a safe haven when the market goes haywire. While the valuation of many stocks have dropped to 52-week lows, most telecom issues were just a tad off their 52-week highs. “[With] little international exposure,” says Moore. “They offer investors a place to run when the market is volatile.”
This is a complete about-face from a few years ago when telecoms were considered just a handful of stodgy, lumbering firms with predictable returns. Deregulation and industry-wide consolidation created a new crop of players as well as large innovative companies with significant global reach.
Moore favors BellSouth (NYSE: BLS), a $ 23 billion company in Atlanta with a considerable share of the local telephone market and a growing wireless franchise. The company’s recent 2-for-1 stock split, a 5.5% dividend increase and a share repurchase program has pushed the share price upward.
AT&T (NYSE: T) and MCI World-Com (Nasdaq: WCOM), the industry’s largest long-distance operators, also represent earnings powerhouses. AT&T will gain momentum from the TCI purchase, which will help expand its technology convergence efforts, while MCI WorldCom is increasing its Internet presence — almost 45% of such activity flows through its lines.
For investors willing to take on more risk for greater reward, Moore recommends Global Telesystems Group (Nasdaq: GTSG); IDT Corp. (Nasdaq: IDTC); Pacific Gateway Exchange Inc. (Nasdaq: PGEX). Moore says that you should buy the equities “for the long-term because we expect their stock prices to recover.”
Moore’s Six Surging Telecom Stocks