It is not known for rapid growth and it is known for some vulnerability to rising interest rates, but here is the telecommunications sector and some of the corresponding exchange traded funds gaining another bullish endorsement.
“Sam Stovall, U.S. Equity Strategist for S&P Capital IQ, raised the investment outlook for the S&P 500 telecom services sector to overweight from underweight today, with a recommended weighting of 2.8% (2.3% for the S&P 500 index). The upgrade reflects an easing of competitive pricing pressures, the expectation for accretive acquisitions, and an above-market dividend yield (4.9%) for a group not typically regarded as a bond-substitute income play. Also, the sector appears attractively valued to S&P Capital IQ at 13X consensus ’16 EPS estimates. Finally, the percentage of stocks in the S&P 500 telecom services sector that carry favorable investment recommendations is above average versus the market,” according to a new research note from S&P Capital IQ.
Investors tempted by the likes of the iShares U.S. Telecommunications ETF (NYSEArca: IYZ) and the Vanguard Telecommunication Services ETF (NYSEArca: VOX) will be buying dips as IYZ is down more than 3% over the past month while VOX is lower by almost 2% over the same period. [Politicians Love Stocks in These ETFs]
AT&T (NYSE: T), one of the marquee holdings in IYZ and VOX has recently gained some bullish backing as the company puts the final touches on its acquisition of DirecTV (NasdaqGS: DTV). Earlier this month, Oppenheimer reiterated an outperform rating on AT&T while boosting its price target on the stock to $40 from $36. S&P Capital IQ has a three-star rating on the former Dow component.
The research firm has four-star ratings on CenturyLink (NYSE: CTL) and Frontier Communications (NasdaqGS: FTR), two stocks with an average dividend yield of 7.9%. IYZ allocates a combined 21.5% of its weight to AT&T, CenturyLink and Frontier. [Reasons to Dial up Telecom ETFs]