Telecom stocks tend to get a bad rap. Big but boring legacy names tend to be seen as pure dividend producers. They offer limited growth prospects at best and value traps at worst. But times are changing. And the era of telecom stocks being relegated to low-risk/low-reward portfolios is over.
Most of the emergent innovation among telecom stocks comes from rapid advancements. We’re using more data than ever, requiring increased coverage from terrestrial and space-based telecom stocks. Likewise, edge computing is creating more demand for lightning-fast data connections. Semiconductor innovations, too, are increasing our integrability as the Internet of Things (IoT) concept advances.
Telecom stocks aren’t boring, though the market tends to price them that way. Therefore, picking top telecom stocks today can set you up for long-term growth once mass realization catches up to reality.
AT&T (NYSE:T) is unique in that, unlike many other legacy telecom stocks, the massive cell and data company is happy to innovate its way into the future.
Specifically, the company is pivotal in financing AST SpaceMobile’s (NASDAQ:ASTS) satellite-based cell service project. It is expected to launch commercially in 2024. The strategic investment comes on the heels of AT&T and AST’s joint venture to complete the first satellite-enabled 5G cell phone call ever last year. This focus on the future increases AT&T’s growth potential in 2024 while offering telecom investors a respectable 6.3% yield to boot.
AT&T showcased its growth path in its latest earnings report. Though the late-January release disappointed Wall Street and dropped AT&T’s per-share briefly, the stock then rebounded by 5% to kickstart February. The report disclosed a nearly 4% increase in wireless service revenue year over year (YOY). It proved AT&T’s capacity to retain a large subscriber base while tweaking pricing to manage higher capital expenses.
Also, big news in the report included AT&T’s postpaid phone net additions, which beat expectations with 526,000, against the anticipated 487,500. This impressive performance, especially in a highly competitive and saturated telecom market, is remarkable. Additionally, it promises further growth for AT&T, especially if its bet on ASTS yields positive results.
Iridium Communications (IRDM)
One of Cathie Wood’s favorite stocks, space telecom company Iridium Communications (NASDAQ:IRDM), is having a tough few months.
Most of its recent downside came from the company scrapping its joint venture with Qualcomm (NASDAQ:QCOM) in November. The plan was to leverage Qualcomm’s cell-centric semiconductor business to create chips enabling standard cell phones to access Iridium’s low-earth satellite array. After dropping the partnership, Iridium looked to be increasingly squeezed out of the changing space-based telecom market. The latter is typified by companies like ASTS, mentioned previously.
But Iridium is doubling down on its plan to link its satellite constellations with the cell phone in your pocket. If all goes to plan, the pivot could send the stock skyrocketing as one of the more mature telecom stocks in the niche industry. Instead of adapting cell phones to match their satellite capabilities, though, they’re changing their satellite protocols to match existing devices. We’re in a new space race to provide worldwide cell coverage via satellite. Impressively, contenders include SpaceX and Amazon (NASDAQ:AMZN) alongside ASTS. Whoever wins will reap massive rewards, and Iridium already has a leg up on the competition.
American Tower Corp (AMT)
Of course, even with an abundance of space-based telecom stock available, we still need something firmly rooted in terra firma. And few telecom stocks offer the stability and income upside than REIT American Tower Corp (NYSE:AMT). As a global telecom REIT, it owns nearly a quarter-million communications sites servicing radio, television, government agencies and, of course, wireless service and data providers. This makes AMT a top telecom stock for diversification, considering it captures industry-wide upside. And, it is agnostic to the market forces pulling customers to and from individual standard telecom stocks.
AMT took some flak in recent weeks for pulling out of existing and planned operations within India. Morningstar analyst Matthew Dolgin discussed this in a January 5th note. Part of AMT’s appeal is its global reach, and India is one of the fastest-growing segments for cell tower providers. But the move came on the heels of AMT’s biggest customer in India effectively refusing to pay full leasing prices for agreed-upon tower real estate. To me, that sounds like a quagmire waiting to happen that would eventually cost the company far more than sacrificing growth in the region ultimately does.
On the date of publication, Jeremy Flint held no positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.