13 Best Communication Services Stocks To Invest In

Published on May 11, 2023 at 12:53 pm by Jose Karlo Mari Tottoc in Hedge Funds, News

In this article, we will take a look at the 13 best communication services stocks to invest in. To see more such companies, go directly to 5 Best Communication Services Stocks To Invest In.

The internet revolution gave rise to the communication services industry that keeps growing, evolving and innovating. The communication services industry is a huge area where small and large players are vying for user attention and to become the consumer’s top priority to communicate with others, consume and share media. Edward Jones in an August 2020 report noted several important trends to watch out for in the communication services sector, which the firm at the time said accounted for about 10% of the S&P 500. Edward Jones said that consumers are quickly making a shift from traditional TV to online streaming services like Netflix, Hulu and Walt Disney Co (NYSE:DIS)+. The streaming revolution that was at its peak during August 2020 (when the report was published) has not stopped showing its impact as several companies in the communication services industry have since launched their streaming services to compete with others. The report also noted that consumers were ditching cable and satellite TV services for online subscription services that also offer traditional TV channels. Some notable names in this area were Dish and Alphabet Inc Class A (NASDAQ:GOOGL)’s YouTube.

One of the biggest growth catalysts and areas of competition for companies in the communication services sector has been advertising. The Edward Jones report noted that as consumers begin to consume text, audio and video online, the growth projections for the advertising industry, especially for 2021, were solid. While the report’s rosy predictions for 2021 proved to be true, the inflation crisis that started in 2022 added a lot of uncertainty in the equation. The communication services industry is currently struggling with advertising growth as inflation hammers consumers and small businesses, causing a slowdown in the industry. According to data from the Internet Advertising Bureau (IAB), in 2022, digital advertising revenue jumped 10.8%. This growth was significantly down from the 35% growth reported in 2021. IAB expects this growth to further slow down in 2023 given the current economic situation. However, the firm believes the industry will continue to adapt to the changes as it has done in the past. Some new avenues of opportunities for the industry include video, AR, VR and artificial intelligence.

IAB’s CEO David Cohen said:

“2023 promises to be a challenging year. But this industry, more than most, is galvanized by change. The job now is identifying where the areas of growth are going to be, follow the consumer and develop solutions that meet and exceed their needs.”

Meta Platforms Inc (NASDAQ:META) earlier this year posted solid growth for its ads revenue, surprising many. As the Federal Reserve aims to pause rates hikes and some foresee inflation getting under control, the communication services sector might be set for strong growth in the future.

The communication services sector has took a beating in 2022 as the sector was weighed down by stocks like Alphabet Inc Class A (NASDAQ:GOOGL), Twitter (before it went private), Netflix and more. However, the sector is posting a decent performance this year, with S&P 500 Communications Services Sector Index having gained about 23% year to date through May 8.

Best Communication Services Stocks To Invest In

Photo by ThisisEngineering RAEng on Unsplash

Methodology

While the communication services sector is huge and many count companies such as Meta Platforms Inc (NASDAQ:META), Alphabet Inc Class A (NASDAQ:GOOGL) and Netflix as part of the industry, for this article focused on companies that are offering core communication services such as internet, telecom services, network services, satellite TV/internet services and more. Our criteria for stock selection was hedge fund sentiment, for which we scanned Insider Monkey’s database of 943 hedge funds. We picked 13 communication services stocks with the highest number of hedge fund investors.

Best Communication Services Stocks To Invest In

13. Cogent Communications Holdings Inc. (NASDAQ:CCOI)

Number of Hedge Fund Holders: 18

Washington-based internet service company Cogent Communications Holdings Inc. (NASDAQ:CCOI) ranks 13th in our list of the best communication services stocks to buy now. Cogent Communications Holdings Inc. (NASDAQ:CCOI) is in the spotlight after the company raised its quarterly dividend by 1.1%.

A total of 18 hedge funds tracked by Insider Monkey were bullish on Cogent Communications Holdings Inc. (NASDAQ:CCOI). The biggest hedge fund stakeholder of the firm was Richard Merage’s MIG Capital which owns a $36 million stake in Cogent Communications Holdings Inc. (NASDAQ:CCOI).

12. Cable One Inc. (NYSE:CABO)

Number of Hedge Fund Holders: 27

Arizona-based broadband communications services provider Cable One Inc. (NYSE:CABO) ranks 12th in our list of the best communication services stocks to buy according to hedge funds. Earlier this month Cable One Inc. (NYSE:CABO) posted Q1 results. GAAP EPS of $9.62 missed estimates by $4.44. Revenue in the quarter totaled $421.8 million but missed estimates by $1.14 million.

Out of the 27 hedge funds that had stakes in Cable One Inc. (NYSE:CABO) as of the end of the fourth quarter, Gardner Russo & Gardner of Tom Russo was the biggest stakeholder with a $64 million stake in the company.

Atai Capital made the following comment about Cable One, Inc. (NYSE:CABO) in its Q1 2023 investor letter:

“Cable One, Inc. (NYSE:CABO is a rural broadband provider with the majority of their footprint consisting of Coaxial rather than Fiber. For those unfamiliar with Cable One (Sparklight Internet), you can compare them to their larger, more well-known peers like Charter (Spectrum) or Comcast (Xfinity).

There are however some important distinctions to make; unlike Charter and Comcast, they started to pivot away from TV subs back in 2013, and thus, their EBITDA margins are higher than the rest of the industry (~53% for CABO versus ~40% for Charter). This is because TV subs are basically a zero-margin business and contributed only ~25% of residential revenue for Cable One in 2022 but ~42% for Charter (lower margin, but still profitable for Charter). Funnily enough, I have been shocked at how often cable bears bring up TV subs as a concern on these names, not realizing they contribute nothing to the bottom line and are just a drag on margins. Another contributing factor to Cable One’s higher margins is their industry leading ARPUs (Average revenue per user), which should continue to grow moving forward…” (Please click here to read the full text)

11.Iridium Communications Inc. (NASDAQ:IRDM)

Number of Hedge Fund Holders: 30

Satellite communications company Iridium Communications Inc. (NASDAQ:IRDM) saw a rise in hedge fund sentiment during the last quarter of 2022. 30 hedge funds tracked by Insider Monkey reported having stakes in Iridium Communications Inc. (NASDAQ:IRDM). The biggest hedge fund stakeholder of Iridium Communications Inc. (NASDAQ:IRDM) was Kevin Kuebler and Ming Lam’s Silver Heights Capital Management which owned an $125 million stake in the company. Iridium Communications Inc. (NASDAQ:IRDM) in April posted solid Q1 results after which the stock jumped.

10. Rogers Communications Inc. (NYSE:RCI)

Number of Hedge Fund Holders: 31

Canadian telecom company Rogers Communications Inc. (NYSE:RCI) is in the spotlight after the company closed C$20 billion takeover Shaw Communications.

During the first quarter, Rogers Communications Inc. (NYSE:RCI)’s adjusted EPS came in at C$1.09, beating estimates by C$0.13. Revenue in the quarter increased by about 5.8% year over year to total C$3.83 billion, beating estimates by C$40 million. Total services revenue was up 4% in the quarter.

9. Lumen Technologies, Inc. (NYSE:LUMN)

Number of Hedge Fund Holders: 34

Louisiana-based Lumen Technologies, Inc. (NYSE:LUMN) offers communications, networking, voice and Cloud services. Lumen Technologies, Inc. (NYSE:LUMN) recently posted strong Q1 results. Adjusted EPS in the period came in at $0.10, beating estimates by $0.09. Revenue in the quarter fell about 20.1% year over year to reach $3.74 billion, beating estimates by $10 million.

The results showed the company’s turnaround plan is working. Talking about this plan, Lumen Technologies, Inc. (NYSE:LUMN)’s management said during its latest earnings call:

“During Q1, we reduced our principal debt balance by $620 million and Lumen senior noteholders that participated in the exchange received a higher coupon, as well as secured debt in the Level 3 silo. In the first quarter exchange transactions, we issued $915 million a Level 3 secured bonds and Lumen’s annual interest expense remains relatively unchanged. This exchange combined with the expected proceeds from the EMEA transaction, will allow us to focus on executing against our two-year turnaround plan, which we expect will return Lumen to growth. We will continue to pursue additional opportunities to enhance our capital structure to support our long-term plan, which we expect will provide strong returns for our stakeholders.”

8. Frontier Communications Corporation (NASDAQ:FYBR)

Number of Hedge Fund Holders: 35

Telecom company Frontier Communications Corporation (NASDAQ:FYBR) ranks 8th in our list of the best communication services stocks to buy now. In March, the stock jumped after Hedgeye called Frontier Communications Corporation (NASDAQ:FYBR) its new long idea. Hedgeye at the time said Frontier Communications Corporation (NASDAQ:FYBR) could reach $40 per share over the next one to two years. Hedgeye said that the concerns related to slow pace of fiber builds and increased competition will prove to be “short sighted.”

As of the end of the last quarter of 2022, 35 hedge funds had stakes in Frontier Communications Corporation (NASDAQ:FYBR). In addition to Comcast Corporation (NASDAQ:CMCSK), Meta Platforms Inc (NASDAQ:META) and Alphabet Inc Class A (NASDAQ:GOOGL), FYBR is a popular communication services stock among hedge funds.

7. DISH Network Corp. (NASDAQ:DISH)

Number of Hedge Fund Holders: 37

DISH Network Corp. (NASDAQ:DISH) is having a bad time in 2023, having lost about 50% in value year to date. Most of the worries surrounding DISH Network Corp. (NASDAQ:DISH) stem from subscriber loss and growing competition. However, some believe DISH Network Corp. (NASDAQ:DISH) is poised to grow in the long term.

Insider Monkey’s database of 943 hedge funds shows that 37 funds had stakes in DISH Network Corp. (NASDAQ:DISH) at the end of the fourth quarter of 2022. The most notable hedge fund stakeholder of DISH Network Corp. (NASDAQ:DISH) was Boykin Curry’s Eagle Capital Management which owns a $215 million stake in the company.

6. SBA Communications Corporation (NASDAQ:SBAC)

Number of Hedge Fund Holders: 42

SBA Communications Corporation (NASDAQ:SBAC) is an interesting play in the communications service. It’s a REIT that provides wireless communications infrastructure to telecom companies and network providers.

Insider Monkey’s database of 943 hedge funds shows that 42 hedge funds had stakes in SBA Communications Corporation (NASDAQ:SBAC) as of the end of the fourth quarter of 2022.

SBA Communications Corporation (NASDAQ:SBAC) recently posted solid Q1 results and upped its 2023 guidance. SBA Communications Corporation (NASDAQ:SBAC) now expects adjusted FFO per share of $12.55-$12.91 in the year. This is better than the consensus estimate of $12.16 consensus and ahead of the company’s previous guidance of $12.46-$12.83.

Revenue is estimated to come in the range of $2.69 billion to $2.73 billion, versus the consensus estimate of $2.70 billion.

Like Comcast Corporation (NASDAQ:CMCSK), Meta Platforms Inc (NASDAQ:META) and Alphabet Inc Class A (NASDAQ:GOOGL), SBAC is a popular communication services stock among hedge funds.

Click to continue reading and see 5 Best Communication Services Stocks To Invest In.