NEW YORK (MainStreet) — The telecommunication industry is an oligopoly of four major providers all trying to compete for market share. These cell phone companies are: AT&T (T), Verizon (VZ), Sprint (S) and T-mobile (TMUS). Fifteen years ago, investing in a service provider would have been an insane position due to the scarcity in the marketplace. Now, these phone services are some of the biggest companies on the exchange. With a continuing uptrend in the sector, it's important to determine which company is the best investment for your money?
One of the major things that I look for in a company is potential growth. This means expanding in the marketplace, entering different ventures, producing larger margins, etc. A company that is at the forefront of the market isn't necessarily the security with the largest potential growth. We are not only looking for a diverse business model, we are looking to see if a company has the capability to expand. For example, take a company like Virgin Mobile. They are a big player in telephone services and they have also built a brand in the aviation industry with their commercial airlines.
Sprint Corporation has been my go to telecommunications stock for a long time. I believe it is in a great position for growth given its relatively low market share. Three years ago, this stock was nearing the $2 point. Now (S) is in the mid $5 range, not a bad price influx in that short amount of time. The only drawback to this company is that Sprint does not pay a dividend and is one of your more risky investments. The company's recent acquisition of Virgin Mobile USA at $483 million allows Sprint to work its way up the market share totem pole.
AT&T, by contrast, is good for one thing and one thing only -- its huge dividend. For an investor who is looking for a secure stock that he can capitalize off of on an annual basis, (T) is the right stock for you. AT&T distributes a 5% yield which is unheard of in this day and age. Usually companies pay dividends to counteract the low volatility in their share price, so there isn't much risk like Sprint (S). Verizon and AT&T are neck and neck in market cap and size. (VZ) also pays a great yield of 4%, yet I find the stock to be a little more volatile.
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T-Mobile (TMUS) is probably the riskiest out of the selected companies due to its market share and market cap of only $25 billion. Although the company may not be able to keep up with Verizon's and AT&T's $200 billion market caps, (TMUS) has something under its belt. Due to the company's small market cap in such a big field, T-Mobile has the ability to get acquired by someone bigger. Although this is very risky, it could greatly pay off in the long run.
This sector is flexible to anyone's portfolio, whether an investor is looking for a short term or longterm investment.
Telecommunications is rapidly evolving and becoming a stronger dependent in the average persons daily life. It is something that we can't live without, and there are no substitutes within the near future.
--Written by Max Levin for MainStreet