Amazon (NASDAQ: AMZN) and Disney (NYSE: DIS) both dominate their industries and have tons of potential within their various businesses. They've both felt pressure over the past few years, like most companies in a volatile economy, and their stocks are both climbing again.
You may not realize it, but last week marked one of the most important data releases of the quarter for investors -- and I'm not talking about the highly anticipated April inflation report.
The communications scene is home to some intriguing companies, many of which boast fairly reasonable valuations at this point in the bull market. Undoubtedly, the communications scene entails a high degree of spending. In a falling-rate environment, such heavy spenders may catch more of a break. In any case, the following firms — TMUS, T, and AMZN (even though AMZN may not seem like a communications play at first) — seem worth checking out while the analyst community views them as Strong Buys.
Therefore,
let’s check in with TipRanks’ Comparison Tool to get a better gauge of which stock may be the best bet for the long haul.
T-Mobile (
NASDAQ:TMUS)
Many legacy telecom firms fumbled the ball in a big way many years ago, allowing T-Mobile to not only grab the ball but sprint at explosive speed toward the endzone. Today, TMUS stock is pretty much the go-to telecom stock to own if you seek steady gains. Over the past 10 and five years,
shares have soared over 380% and 112%, respectively.
Though the momentum has slowed in recent years, with a bit more volatility (shares lost almost 33% from peak to trough of their value in the back half of 2021), I still view T-Mobile as a winner with the means to keep on taking share and powering growth. As such, I’m staying bullish, even if the pace of gains has slowed a bit.
It’s not just heavy investment in an enviable 5G wireless infrastructure that’s given T-Mobile the edge over rivals, but the firm has also not been afraid to undercut rivals. Whether it’s through aggressive promotions or new plan “types,” T-Mobile certainly stands out as an aggressor in a market of firms that seemingly only know how to play defense.
Recently, T-Mobile unveiled its “Flex” plans, which include a “free” phone for subscribers, among other perks. The plans are also pretty affordable, starting at $50 per month for unlimited 5G data, talk, text, a robocall-blocking service (goodbye annoying spam calls), and a very generous 100GB in cloud storage space courtesy of Alphabet’s (
NASDAQ:GOOGL
) (
NASDAQ:GOOG
) Google One.
If that sounds like a deal too good to pass up, that’s because it is, especially in an uncertain economic landscape with many consumers still “hungover” from inflation. At this pace, it seems like TMUS stock is bound to pick up momentum as the company gains more market share while holding onto the share it already has.
Its first-quarter results saw T-Mobile add 532,000 postpaid customers, topping rivals but coming in line with the additions enjoyed in the same quarter a year prior. With the new Flex plan, count me as unsurprised if additions get a big jolt.
What Is the Price Target of TMUS Stock?
TMUS stock is a Strong Buy, according to analysts, with 15 unanimous Buys assigned in the past three months. The
average TMUS stock price target of $188.15 implies 13.7% upside potential.
AT&T (
NYSE:T)
AT&T is one of the laggards in the telecom scene, as it’s struggling to catch up to the top dog, T-Mobile. Despite the multi-year slump, the main draw to AT&T stock is the
nice dividend (6.33% yield) and the potentially “deep” value to be had in shares. At 7.8 times forward price-to-earnings (P/E), T stock goes for far less than T-Mobile, which boasts an 18.3 times forward P/E at writing. And though T-Mobile recently announced a dividend (current yield of 1.6%), it represents just a fraction of AT&T’s dividend yield.
Personally, I’d much rather be in the market leader that’s taking share than a firm that’s undergoing a massive transformation where success is no guarantee. As such, I’m neutral on the stock, though I am enticed by its
recent deal with satellite network firm AST SpaceMobile (
NASDAQ:ASTS
), which could put the legacy telecom firm on the cutting edge of tech again with “space-based direct-to-mobile technology.”
Could satellite connectivity be the next frontier for the telecoms? It could be. And it could represent an opportunity for AT&T to hit back at T-Mobile. By investing wisely, AT&T could attract and retain remote consumers who rely on satellite for a decent internet connection.
In any case, it’s too hard to tell when AT&T’s AST SpaceMobile deal will pay off. It could be many years if not more than a decade. Though less material over the medium term, I view it as an encouraging sign of where AT&T could be looking for next-generation growth.
What Is the Price Target of T Stock?
T stock is a Strong Buy, according to analysts, with nine Buys and one Hold assigned in the past three months. The
average T stock price target of $21.25 implies 21.4% upside potential.
Amazon (
NASDAQ:AMZN)
Amazon is an e-commerce and cloud-computing firm that has a hand in many pies, from groceries (think Whole Foods) to video streaming (Prime Video) and even gamer-focused social media (Twitch). The communications scene is just another market that Amazon could look to make a lateral move into as it expands its many service segments.
Call Amazon a digital retailer or cloud service provider, if you will. However, it can pay dividends (not literally) to view the firm as more of a market disruptor that’s not satisfied unless it’s disrupting new markets to fuel its growth profile. Given its ability to sustain growth by targeting new markets, I have to stay bullish even with new all-time highs in sight.
On the surface, Amazon doesn’t seem to have all that much exposure to communications, at least compared to other media and telecom pure-plays. Digging deeper, though, it becomes more apparent that Amazon is an influential force in the communications scene. In fact, I’d argue that the communications landscape is ripe for disruption and could become a serious growth market for Amazon in the distant future.
Live-streaming platform Twitch and audiobook platform Audible are just two “media” businesses that the firm can build off of in a big way. Such businesses represent a sliver of the overall Amazon pie today, but perhaps they could be part of a budding communications segment at some point down the road, especially as AI is thrown into the mix.
Additionally, Amazon’s more experimental projects may just put the telecom scene on notice a decade or more from now. Specifically,
Amazon’s Project Kuiper, which is shooting to construct a broadband internet network of 3,236 satellites, could be a development to watch closely as Elon Musk’s satellite internet firm Starlink shows signs of early success. For Amazon, Project Kuiper represents a potential threat to traditional telecoms in the future.
With AMZN stock going for just north of 40 times forward P/E, I not only think such a project is not being baked in to the valuation, but the full potential of its AI-enabled cloud business may not be as well.
What Is the Price Target for AMZN Stock?
AMZN stock is a Strong Buy, according to analysts, with 42 unanimous Buys assigned in the past three months. The
average AMZN stock price target of $220.60 implies 20.5% upside potential.
The Takeaway
Analysts hold communications stocks in high regard these days. The competitive landscape may be fierce, but with next-generation innovation (think 6G, satellite connectivity, and beyond) and potentially lower rates thrown in, I view the communications market as intriguing. Of the trio, analysts see the most upside in T stock for the year ahead.
Disclosure
Tech stocks rose late Wednesday afternoon with the Technology Select Sector SPDR Fund (XLK) rising 0.1% and the SPDR S&P Semiconductor ETF (XSD) climbing 1.8%.
Target Corporation (NYSE: TGT) is a top-tier discount retail sector company with nearly 2,000 stores and a developed online e-commerce platform. Target Corporation’s earnings report for the first quarter of 2024 was released, providing a detailed look at its financial health. Ta
Looking today at week-over-week shares outstanding changes among the universe of ETFs covered at ETF Channel, one standout is the SPDR S&P 500 ETF Trust (Symbol: SPY) where we have detected an approximate $3 inflow -- that's a 0.5% increase week over week in outstanding unit
Rivian Automotive (NASDAQ: RIVN) was one of the market's hottest stocks when it went public in November of 2021. Its stock more than doubled from its initial public offering (IPO) of $78 to its all-time high of $172.01 just a week later. At the time, investors were impressed by i
Below is Validea's guru fundamental report for AMAZON.COM INC (AMZN). Of the 22 guru strategies we follow, AMZN rates highest using our P/B Growth Investor model based on the published strategy of Partha Mohanram. This growth model looks for low book-to-market stocks that exhibi
We now have details about what hedge fund managers are doing with their money, and Michael Burry is one of the investors betting big on Chinese stocks. In this video, Travis Hoium covers where he's buying and what he was selling in the first quarter of 2024.
International Business Machines (NYSE: IBM) has found its footing in the AI market by focusing on enterprise customers with complex requirements. The company's watsonx platform caters to companies and organizations that need to train, tune, and deploy AI applications while mindin
Target (NYSE: TGT) is trying to move into the membership business by leveraging its large base of credit card users and digital products. However, the company has failed to make the system efficient and delightful for consumers, undermining the strategy. In this video, Travis Hoi
Although Roku (NASDAQ: ROKU) shares are up 51% since the start of 2023, a gain that benefited from the rise of the overall stock market, they're down a notable 33% this year (as of May 17). Investors weren't too happy with the guidance that management provided in the latest finan
In case you missed it, what's arguably the most important data release of the second quarter occurred last week -- and I'm not talking about the monthly inflation report from the Bureau of Labor Statistics.
Target (NYSE: TGT), the second-largest discount chain in the U.S., is scheduled to report its fiscal first-quarter results on Wednesday, May 22. We expect Target’s stock to likely trade higher past Q1 results due to revenues and earnings beating expectations. Target’s
I’m bearish on Tesla (
NASDAQ:TSLA
), and I can’t help but think that Elon Musk’s announcement regarding the
unveiling of a Robotaxi on August 8 is something of a distraction. So, why would Musk be distracting us? Well, vehicle sales are slowing, margins are falling, and Tesla’s dominance in the electric vehicle (EV) segment is over. Plus, the stock’s valuation is high. This is why I’m bearish on TSLA stock, but I don’t expect it to move much until we know what Musk has in store for us on August 8.
TSLA stock has fallen by 13.5% in the past three years.
Tesla’s Performance Is Underwhelming
In Q1, Tesla reported a 9% decline in quarterly revenue — the steepest year-over-year decline since 2012 — and a 48% decrease in adjusted profit. The company’s adjusted earnings per share (EPS) came in at
45 cents versus the expected 49 cents. Also, revenue for the quarter fell to $21.3 billion — less than the $22.2 billion the market had anticipated.
Revenue fell both on a year-over-year basis and sequentially. Meanwhile, net income dropped 55% to $1.13 billion from $2.51 billion a year ago. On a non-adjusted basis, net income per share fell from 73 cents a year ago to 34 cents in Q1 2024. Moreover, in an increasingly competitive market, Tesla’s price cuts negatively impacted margins with no obvious end in sight.
However, Musk also pointed to unforeseen challenges as a reason for the company’s underperformance. “We navigated several unforeseen challenges as well as the ramp of the updated Model 3 in Fremont. As we all have seen, the EV adoption rate globally is under pressure, and a lot of other order manufacturers are pulling back on EVs and pursuing plug-in hybrids instead. We believe this is not the right strategy, and electric vehicles will ultimately dominate the market,” Musk said in the Q1 earnings call.
Am I Underestimating Tesla’s AI Potential?
In Q1,
Tesla’s free cash flow turned negative. The Austin-based company reported a deficit of $2.53 billion, representing a significant change from a year ago when Tesla had a free cash flow of $441 million. In the fourth quarter of 2023, Tesla reported free cash flow of $2.06 billion. Tesla explained that the negative cash flow was due to a $2.7 billion increase in inventory and $1 billion in capital expenditures on artificial intelligence (AI) infrastructure.
AI is certainly the buzzword of investing at this moment in time, and I don’t believe that it’s overused. However, some analysts are arguing that investors shouldn’t be valuing Tesla as a car company but as a tech company at the forefront of AI.
I’m a little skeptical about this, even though I appreciate that Tesla has AI capabilities in areas like manufacturing, the Tesla Bot, and energy trading. So far, though, I’m yet to be convinced that these are parts of the business with revenue-generating capacity that is remotely comparable with car production.
Of course, the AI-enabled Robotaxi could change my opinion. The question is whether Tesla has really managed to achieve a quantum leap in autonomous technology. This would truly put Tesla in the driving seat and establish its dominance in the autonomous segment.
The growth of the Robotaxi segment would also open up another revenue-generating segment, which does look highly attractive. Autonomous cars require lots of computational power, but that power would only be used when the vehicle is active. This means these impressive computers will only be used a fraction of the time.
Similar to Amazon (
NASDAQ:AMZN
) Web Services, Tesla could sell this spare capacity and create a new and potentially sizeable revenue stream. “It seems like kind of a no-brainer to say, OK, if we’ve got millions and then tens of millions of vehicles out there where the computers are idle most of the time that we might well have them do something useful,” Musk said in the Q1 results call, adding that Tesla could have 100 gigawatts of “useful compute.”
Tesla’s Valuation and Musk’s Promises
Musk has a habit of overpromising and underdelivering. So, this is why I remain bearish on Tesla. I’ve yet to see evidence that Tesla is about to drop a fully autonomous vehicle, which happens to have spare computational capacity that can be used and sold as part of some Tesla cloud.
This wouldn’t be a problem if Tesla’s valuation was in line with its peers. However, Tesla is currently trading around 70x forward earnings. What’s more, analysts clearly aren’t convinced that growth will pick up in the medium term, with a price-to-earnings-to-growth ratio of 5.75x.
For now, the promise of an autonomous vehicle appears to be keeping the share price elevated despite the lack of concrete information. All eyes, therefore, are on August 8. I believe the stock could tread water until then.
Is Tesla Stock a Buy, According to Analysts?
On TipRanks, Tesla comes in as a Hold based on nine Buys, 15 Holds, and nine Sell ratings assigned by analysts in the past three months. The
average Tesla stock price target is $174.60, implying 6.4% downside potential.
The Bottom Line on Tesla Stock
Personally, I’m skeptical as to whether Tesla has really made a breakthrough in autonomous vehicles. Nonetheless, I accept that Robotaxi and fully autonomous vehicles, in general, have huge potential. This potential isn’t limited to the road but also, as Musk discussed, the ability to sell unused computing power to the rest of the market. However, at 70x forward earnings, I simply can’t put my money behind Tesla.
Disclosure
Many groups are piling into gold, including central banks and sovereign governments. Gold has also become very popular among individual Chinese investors and family offices that cater to the global rich. Most of these investors choose physical gold. That's what famed investor Michael Burry did. But instead of the GLD ETF, he opted for another physical gold ETF - PHYS. Find out why.
Tech stocks were mixed Tuesday afternoon, with the Technology Select Sector SPDR Fund (XLK) rising 0.2% and the SPDR S&P Semiconductor ETF (XSD) down 0.5%.
It's the gift that keeps on giving. As Rule Breaker Investing celebrates David Gardner's birthday, we'd like to thank you for all the notes, emails, and tweets summarizing the lessons that matter most to you.