Telecom stocks have taken a hit over the past few years. Most companies in the space have been struggling under the weight of their massive debt loads as they upgrade their infrastructure to support 5G. With the stock market expected to drop even further from current levels, it’s probably the right time to reassess your portfolios and consider these telecom stocks to sell.
Granted, telecom stocks can be highly appealing to long-term investors. All thanks to attractive valuations and steady dividends. However, many of them can be value traps with unsustainable yields. Therefore, it is imperative not to be swayed by high dividend-yielding telecom stocks. Let’s look at seven telecom stocks to sell that are likely to lose a truckload of value in the upcoming downturn.
|Telephone & Data Systems
AST SpaceMobile (ASTS)
Space-based mobile telecommunications AST SpaceMobile (NASDAQ:ASTS) has performed relatively well since going public last year. Its shares rallied briefly a couple of months ago amidst excitement surrounding its BlueWalker 3 satellite. However, it was only a flash in the pan, and a recent short report, from Kerrisdale Capital, has further increased AST’s woes. The short report questioned the stock’s valuation, its satellite design, competitive threats, and the likelihood of shareholder dilution. Moreover, the report also talked about how the company needs to raise billions in new capital to keep its services operational. Therefore, with multiple risks surrounding the business, it’s best to avoid ASTS stock at this time.
American Tower (AMT)
American Tower (NYSE:AMT) is a top global real-estate-investment-trust (REIT), operating multi-tenant communications real estate with a portfolio of roughly 222,000 communications sites. It’s been a steady performer over the past decade due to strong growth in mobile data usage. The trend remains intact, with data usage expected to grow at an incredible 20% annually over the next five years.
Its shares have underperformed of late due to rising interest and inflation rates weighing-down real estate-related stocks. Like most companies, AMT benefitted immensely from falling interest rates in the past decade. However, the rising interest rates of late have weighed down the company’s financial flexibility. Its debt burden has increased significantly while its business suffers from a strengthening U.S. dollar.
AMT operates a global tower business generating roughly 45% of its sales from overseas. The U.S. dollar has risen incredibly in the past 12 months, and with the Fed remaining hawkish, the translation risk will only get worse.
BCE Inc. (BCE)
BCE Inc. (NYSE:BCE) is a diversified business, with its tentacles in multiple areas, such as radio broadcasting and television. Most investors would be looking at its impressive dividend yield of 5.98%, but considering its dwindling financial health, it’s tough to see how BCE will maintain its dividend profile. Therefore, its bear case seems more compelling at this time, with its current valuation skewed towards the downside. BCE’s deplorable financial health and lackluster revenue expansion will likely lead to a dividend cut. Recent earnings performances have been forgettable and will likely weigh down its ability to pay dividends. Moreover, its stock trades close to its historical price multiples despite its fundamentals and outlook weakness.
Charter Communications (CHTR)
Charter Communications (NASDAQ:CHTR) is a leading cable and broadband operator serving residential and commercial customers in the U.S. Over the years, and it’s operated a business that has generated consistent revenue and profits. However, it witnessed a slowdown in its results this year without having much of an impact on its lofty stock price.
It reported a net loss of 21,000 internet subscribers in its second quarter. Net subscriber additions have been crucial for the company’s long-term expansion, and its second-quarter results are disconcerting. Its management has talked about the low growth environment for internet services which has significantly reduced opportunities for subscriber additions. On top of that, the firm’s financial metrics continue to weaken with every passing quarter. Its debt is 9.75 times its equity, far worse than its peers and its historical average. Hence, CHTR has little wiggle room to navigate through the current crisis.
Telephone & Data Systems, Inc. (TDS)
Telephone & Data Systems, Inc. (NYSE:TDS) is a legacy telecom business with its subsidiary USM among the largest wireless providers in the U.S. Though its dividend profile is impressive, its underlying fundamentals have been a disappointment. With investors looking to invest in high-quality businesses currently, TDS isn’t the stock you should be wagering on at this time. Its business comes with low returns on capital, a small market share, and low operating margins. Revenue growth has fluctuated in the past several quarters, with its five-year average at just 0.8%. Despite its vast experience in the telecom sphere, it still hasn’t been able to produce consistently growing sales and move up the ranks in its sector.
Shenandoah Telecom (SHEN)
Shenandoah Telecom (NASDAQ:SHEN) is another broadband, cable, and phone service provider in six U.S. states. It operates highly-valued assets and has been a consistent business over the past several years. Revenues have grown by 17.6% over the past five years, with a healthy improvement in profits. Perhaps the main knock on SHEN stock is its premium valuation, especially in the current economic environment. It trades at over 3.7 times forward sales, compared to the sector average of just 1.18 times forward sales estimates. Revenue growth is down considerably from its historical average, and its bottom line has been taking a major hit. Nonetheless, SHEN stock has held up remarkably well in the stock market, which makes it an unattractive bet.
Zoom Video (ZM)
Zoom Video (NASDAQ:ZM) was a pandemic darling, with its stock climbing to an all-time high of $568.30 per share. It’s gone from a high-flying stock to a potential value play, dropping over 80% of its value in the past 12 months. With the pandemic fade, Zoom’s growth has screed to a halt. Its revenues in the second quarter grew by just 8% from the prior-year period. Moreover, income from operations saw a substantial in its income from operations, from $294.6 million to $121.7 million. Analysts forecast revenue expansion of just 7.1% this year, a far cry from its results in the past couple of years.
Zoom relies on limited products and services and will have hardly any competitive edge against its other players in the communication space. Therefore, it’s tough to envision a scenario where it could grow at the same pace as it did during the pandemic.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines