12 Best Communication Stocks To Buy According To Hedge Funds
In this article, we discuss 12 best communication stocks to buy according to hedge funds. If you want to skip our detailed discussion on the communication industry, head over to 5 Best Communication Stocks To Buy According To Hedge Funds.
In 2023, the communication services sector experienced a remarkable year. The sector's success was partly a rebound from the previous year's lackluster performance and partly fueled by investor enthusiasm for artificial intelligence. Despite the strong showing in 2023, the communication services sector appears to have significant potential heading into 2024. By the end of 2023, valuations within the sector remained attractive, and positive shifts were observed in earnings estimates. Despite reaching record earnings and displaying momentum, stock prices in the sector had not yet returned to their previous peak levels.
Fitch Ratings' 2024 outlook for the North American Telecommunications and Cable sector remains neutral. The sector shows a divergence, with large wireless and tower operators expected to de-lever, while some telecom and cable operators face competitive and secular challenges, along with increased debt costs. The sector is viewed as relatively resilient due to the essential nature of broadband and connectivity services. Despite potential risks like consumers opting for lower-priced services, wireless subscriber growth is anticipated, supported by implemented price increases. Fitch projects modest revenue growth and improved free cash flow for the sector in 2024-2025, with EBITDA margins expected to slightly improve. The decline in 5G-related capital expenditures is anticipated to drive an overall increase in aggregate free cash flow, allowing certain operators to focus on debt reduction in 2024.
According to PwC, the telecommunications industry is grappling with a strategic challenge akin to mature industries, facing increased data consumption but limited pricing power in commoditized services. Despite a threefold increase in global data consumption by 2027, revenues from internet access are expected to grow modestly at a 4% CAGR to $921.6 billion. Telecommunications companies face significant investment needs, projected to spend $342.1 billion in 2027, particularly with the ongoing transition to 5G. PwC's Global Telecom Outlook suggests that, amid cost-cutting efforts, telcos can explore growth in areas like IoT solutions, private 5G networks, home broadband, and tailored digital services for sectors like entertainment, healthcare, manufacturing, and mobility. Adapting to broader ecosystems is seen as a strategic imperative in this evolving industry.
Some of the best communication stocks to invest in according to hedge funds include Meta Platforms, Inc. (NASDAQ:META), T-Mobile US, Inc. (NASDAQ:TMUS), and Charter Communications, Inc. (NASDAQ:CHTR).
Our Methodology
We chose the top communication stocks based on overall hedge fund sentiment toward each stock. We have assessed the hedge fund sentiment from Insider Monkey's database of 910 elite hedge funds tracked as of the end of the third quarter of 2023. The list is arranged in ascending order of the number of hedge fund holders in each firm. Hedge funds' top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here).
A skyscraper adorned with telecommunication equipment, symbolizing the industry.
Best Communication Stocks To Buy According To Hedge Funds
12. SBA Communications Corporation (NASDAQ:SBAC)
Number of Hedge Fund Holders: 32
SBA Communications Corporation (NASDAQ:SBAC) owns and manages wireless communication infrastructure, including towers, buildings, rooftops, distributed antenna systems, and small cells. The company has communication sites spread across the Americas, Africa, and the Philippines. It is one of the top communication stocks to invest in.
On December 15, BMO raised its rating on SBA Communications Corporation (NASDAQ:SBAC) stock from Market Perform to Outperform. This shift is attributed to an appealing valuation for investors and a positive macroeconomic environment for tower REITs. Regarding valuation, SBA Communications Corporation (NASDAQ:SBAC) is currently traded at 18 times the estimated AFFO per share for 2024, representing what BMO perceives as a "favorable opportunity to invest in a top-tier business with robust long-term growth potential."
According to Insider Monkey's third quarter database, SBA Communications Corporation (NASDAQ:SBAC) was part of 32 hedge fund portfolios, compared to 42 in the prior quarter. Ken Griffin's Citadel Investment Group is the leading stakeholder of the company, with 1.3 million shares worth $262.6 million.
Like Meta Platforms, Inc. (NASDAQ:META), T-Mobile US, Inc. (NASDAQ:TMUS), and Charter Communications, Inc. (NASDAQ:CHTR), SBA Communications Corporation (NASDAQ:SBAC) is one of the best communication stocks to invest in.
Baron Asset Fund made the following comment about SBA Communications Corporation (NASDAQ:SBAC) in its Q3 2023 investor letter:
"We reduced our stake in long-term holding SBA Communications Corporation (NASDAQ:SBAC), which owns and operates cellular towers, on concerns that higher interest rates will increase its debt servicing costs and indications that its primary customers will spend less on upgrading their cellular networks."
11. Frontier Communications Parent, Inc. (NASDAQ:FYBR)
Number of Hedge Fund Holders: 40
Frontier Communications Parent, Inc. (NASDAQ:FYBR) delivers communication and technology services within the United States. Its offerings include data and Internet services, voice communication, video services, and other related services. It is one of the best communication stocks to buy.
On February 5, Frontier Communications Parent, Inc. (NASDAQ:FYBR) disclosed that it is carrying out a formal strategic review process. The review encompasses an examination of optimizing operational and financing strategies, evaluating strategic partnerships, joint ventures, divestitures, mergers, and business combinations. This strategic review was prompted by activist Jana Partners, who urged an immediate assessment and potential sale of the company. Jana believes that Frontier's low valuation and strong presence in the fiber broadband sector could make it appealing to wireless carriers and private-equity-owned assets in the industry.
According to Insider Monkey's third quarter database, 40 hedge funds were long Frontier Communications Parent, Inc. (NASDAQ:FYBR), compared to 39 funds in the prior funds. Matthew Barrett's Glendon Capital Management is the biggest stakeholder of the company, with 24.2 million shares worth $379 million.
10. Twilio Inc. (NYSE:TWLO)
Number of Hedge Fund Holders: 43
Twilio Inc. (NYSE:TWLO) offers software and communication solutions in the United States and internationally. The company runs a cloud communications platform for developers to construct, expand, and manage customer engagement within software applications. Established in 2008, Twilio Inc. (NYSE:TWLO) is based in San Francisco, California. It is one of the top communication stocks to invest in.
On January 8, Twilio Inc. (NYSE:TWLO) revealed the appointment of a new CEO and provided optimistic projections for the upcoming quarter. The company anticipates that the fourth-quarter guidance, initially disclosed on November 8, will surpass expectations. Twilio Inc. (NYSE:TWLO) foresees adjusted earnings in the range of 53 to 57 cents per share, coupled with a revenue outlook between $1.03 billion and $1.04 billion.
According to Insider Monkey's third quarter database, 43 hedge funds were bullish on Twilio Inc. (NYSE:TWLO), compared to 49 funds in the prior quarter. David Blood and Al Gore's Generation Investment Management is the biggest stakeholder of the company, with 8.6 million shares worth $505.6 million.
Aristotle Atlantic Focus Growth Strategy made the following comment about Twilio Inc. (NYSE:TWLO) in its Q4 2022 investor letter:
"We sold Twilio Inc. (NYSE:TWLO) and thereby reduced our subsector weight in software. The company reported a decent third quarter, but disappointed on fourth quarter 2022, full year 2023, and long-term guidance. The company is seeing macroeconomic headwinds and a slowdown spreading from technology, social media and cryptocurrency to retail and e-commerce. The other negative disclosure and a driver of this gross margin "miss" was that Twilio's software sales are not accelerating at the rate that we expected. We are disappointed with this lower topline and low operating margin improvement guidance. The business transformation is taking longer than expected, and there is the heightened possibility that the new software growth could be stifled by more formidable competition as Twilio has made too many missteps."
9. AT&T Inc. (NYSE:T)
Number of Hedge Fund Holders: 52
AT&T Inc. (NYSE:T) is a global provider of telecommunications and technology services. The company offers wireless communication services, sells devices, and provides a range of data services to businesses, government entities, wholesale customers, and residential customers. It is one of the best communication stocks, ranking 8th on our list.
On February 1, J.P. Morgan upgraded AT&T Inc. (NYSE:T) based on expectations of sustained, long-term growth in both wireless and broadband segments. The primary source of growth is identified in AT&T Inc. (NYSE:T)'s broadband division, particularly through its ongoing fiber buildout, which is seen as creating additional opportunities within existing markets, according to J.P. Morgan analyst Richard Choe. The analyst increased his rating to Overweight from Neutral and raised the year-end price target to $21 from $18.
According to Insider Monkey's third quarter database, 52 hedge funds were bullish on AT&T Inc. (NYSE:T), compared to 56 funds in the prior quarter. John Overdeck and David Siegel's Two Sigma Advisors is the leading stakeholder of the company, with 22.6 million shares worth $340.7 million.
Miller Value Income Strategy made the following comment about AT&T Inc. (NYSE:T) in its Q3 2023 investor letter:
"Our third-largest holding at quarter end was AT&T Inc. (NYSE:T), a leading provider of communications and connectivity services in the US. At $15/share, the stock trades at the same price it did almost thirty years ago. The share price is much less interesting to us in relation to where it has traded in the past than in relation to how much cash the company generates and what management is doing with it. At just over 6x earnings, the stock trades near its lowest price-to-earnings (P/E) multiple ever, also representing close to its largest-ever P/E discount to the stock market. The business converts most of its earnings to free cash flow, implying a forward free cash flow yield north of 15%. Just under half of free cash flow is going toward the dividend (7.5% yield), while much of the balance is going to debt paydown. In other words, if the stock does not fall below its lowest-ever valuation, investors clip a rock-solid 7.5% in cash, while owning a growing portion of a very steady business as management reduces debt outstanding. A discounted cash flow model will suggest that intrinsic value for shares begins with a "2," suggesting the stock is undervalued on an absolute basis. The lack of volatility in the underlying fundamentals also makes it unique when compared to many other things we own, which reduces the probability of permanent capital impairment and argues for a significant weight in the portfolio.
AT&T looks particularly attractive when compared to some of the larger names dominating the S&P 500. Compare the stock to Apple, for instance, whose revenues and profits are likely to shrink this year, even as it trades at 29x this year's earnings estimate. The ongoing return to rationality and capital accountability, along with extreme valuations in the megacap tech stocks, have us more excited about our portfolio's prospects than we can remember for quite some time. As always, we remain the largest investors and welcome any questions or comments."
8. Liberty Broadband Corporation (NASDAQ:LBRDA)
Number of Hedge Fund Holders: 52
Liberty Broadband Corporation (NASDAQ:LBRDA) is engaged in the communications sector. The company provides a range of services such as data, wireless, video, and voice to residential and business customers in Alaska. The company, incorporated in 2014, is headquartered in Englewood, Colorado. It is one of the best communication stocks to invest in.
On November 6, Liberty Broadband Corporation (NASDAQ:LBRDA) reported Q3 GAAP earnings per share of $1.10 and a revenue of $240 million, falling short of Wall Street estimates by $2.05 and $14.5 million, respectively.
According to Insider Monkey's third quarter database, 52 hedge funds were long Liberty Broadband Corporation (NASDAQ:LBRDA), compared to 56 funds in the preceding quarter. Harris Associates is the leading stakeholder of the company, with 6.72 million shares worth $614.2 million.
Madison Mid Cap Fund stated the following regarding Liberty Broadband Corporation (NASDAQ:LBRDA) in its fourth quarter 2023 investor letter:
"The bottom five detractors for the quarter were Arch Capital Group, Liberty Broadband Corporation (NASDAQ:LBRDA), Brown & Brown, Markel Group, and CarMax. Shares of Liberty Broadband, a holding company with a large investment in cable operator Charter Communications, were weak in the quarter as internet subscriber trends continue to disappoint. While the competitive environment is currently tough, we believe it will improve over time. Cable's technology infrastructure is demonstrably superior, in both cost and performance, to what some of the legacy telecommunications carriers are currently rolling out in the form of "fixed wireless" broadband. Thus, their potential subscriber base is limited to a segment of the population base. We believe it likely therefore that the carriers will soon be limited in the competition they provide to Charter."
7. American Tower Corporation (NYSE:AMT)
Number of Hedge Fund Holders: 60
American Tower Corporation (NYSE:AMT) is a leading global real estate investment trust that owns, constructs, and operates multitenant communications real estate. The company owns a massive portfolio of communications sites and data center facilities in the United States. American Tower Corporation (NYSE:AMT) ranks 7th on our list of the best communication stocks.
On December 14, American Tower Corporation (NYSE:AMT) declared a $1.70 per share quarterly dividend, a 4.9% increase from its prior dividend of $1.62. The dividend was paid to shareholders on February 1.
According to Insider Monkey's third quarter database, 60 hedge funds were bullish on American Tower Corporation (NYSE:AMT), same as the prior quarter. Charles Akre's Akre Capital Management is the biggest stakeholder of the company, with 6.7 million shares worth more than $1 billion.
Baron Real Estate Fund stated the following regarding American Tower Corporation (NYSE:AMT) in its fourth quarter 2023 investor letter:
"Early in 2023, we sold the majority of our position in American Tower Corporation (NYSE:AMT), a global operator of over 200,000 wireless towers, and even further reduced our modest position in the third quarter of 2023. We had concluded in late 2022 and early 2023 that growth expectations were too high given forthcoming headwinds from significantly higher financing costs (20%-plus exposure to floating rate debt), upcoming debt maturities, continued payment shortfalls from a key tenant in India, foreign exchange headwinds, and a reduction in mobile carrier capital expenditures.
Following a sharp decline in American Tower's shares in the first nine months of 2023, we began rebuilding our position because we believed that the company's shares had become more attractively valued, growth headwinds were better understood, and the potential monetization event of its India business would ultimately be value accretive to its business. Further, we believe that 2023 will mark the trough in earnings growth for American Tower and growth should reaccelerate in the next few years."
6. Verizon Communications Inc. (NYSE:VZ)
Number of Hedge Fund Holders: 61
Verizon Communications Inc. (NYSE:VZ) offers communication, technology, information, and entertainment services globally. The company operates through two segments – Verizon Consumer Group and Verizon Business Group. On January 23, Verizon Communications Inc. (NYSE:VZ) reported Q4 non-GAAP earnings per share of $1.08, in-line with Wall Street estimates. The revenue of $35.1 billion outperformed market expectations by $550 million. Verizon achieved a total of 413,000 new broadband connections, marking the fifth consecutive quarter in which the company reported over 400,000 additions to its broadband customer base.
According to Insider Monkey's third quarter database, 61 hedge funds were bullish on Verizon Communications Inc. (NYSE:VZ), compared to 53 funds in the earlier quarter. Paul Marshall and Ian Wace's Marshall Wace LLP is the biggest position holder in the company, with a stake worth $218 million.
Verizon Communications Inc. (NYSE:VZ) ranks 6th on our list of the best communication stocks. Other hedge fund favorites include Meta Platforms, Inc. (NASDAQ:META), T-Mobile US, Inc. (NASDAQ:TMUS), and Charter Communications, Inc. (NASDAQ:CHTR).
Ariel Global Fund made the following comment about Verizon Communications Inc. (NYSE:VZ) in its Q3 2023 investor letter:
"By comparison, global communications and technology leader, Verizon Communications Inc. (NYSE:VZ), continued to weigh on performance following an article in the Wall Street Journal outlining concerns on lead cable lines posing a significant public health threat. Although the lead covered cable lines remain an overhang on shares, we find Verizon's valuation to be compelling. The company delivered a solid earnings report, with subscriber and financial metrics in-line or ahead of consensus. Management also reiterated full year guidance and noted it may exceed its outlook for free-cash-flow. From a competitive and financial standpoint, we view Verizon to be among one of the best positioned telecoms in the world. Looking forward, we expect free cash flow to grow significantly in the years ahead as the company moves past the secular peak in 5G capital spending."
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Disclosure: None. 12 Best Communication Stocks To Buy According To Hedge Funds is originally published on Insider Monkey.