NEW YORK (TheStreet) -- Looking to extract profit in the telecom sector even as the market seesaws?

Consider T-Mobile US (TMUS - Get Report) , Vonage Holdings Corp. (VG - Get Report) or Cogent Communications Holdings (CCOI - Get Report) , according to Oppenheimer.

"In this environment, VG, TMUS, and CCOI represent good risk/reward given secular tailwinds, in our view," Oppenheimer analyst Timothy Horan wrote in a note to clients. "These companies are generally low cost/priced with the ability to reduce expenses, with reasonable balance sheets. High-yield spreads have been widening quite a bit, and companies with high leverage will remain volatile. Volatile markets usually help the wireless carriers and MSOs (multi-system operators) outperform, as they lag the economy by six months or so. Longer term a volatile environment will help accelerate OTT (over-the-top programming), which is positive for VG, and CCOI and other emerging stocks."

MISSING GRAF?

TheStreet Ratings uses a quantitative approach to rating over 4,300 stocks to predict return potential for the next year. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings.

Buying an S&P 500 stock that TheStreet Ratings rated a "buy" yielded a 16.56% return in 2014 beating the S&P 500 Total Return Index by 304 basis points. Buying a Russell 2000 stock that TheStreet Ratings rated a "buy" yielded a 9.5% return in 2014, beating the Russell 2000 index, including dividends reinvested, by 460 basis points last year.

Here's the list and when you're done be sure to check out Oppenheimer's picks for technology stocks to buy now.

TMUS Chart TMUS data by YCharts

1. T-Mobile US Inc. (TMUS - Get Report)
Market Cap: $31.5 billion
YTD Return: 43.8%

Oppenheimer said: Given Monday's pullback to the $39 area, we believe TMUS is very attractively valued relative to its peers. Using a wireless-only EV/EBIT multiple, TMUS is trading at 10.8x FY16E EBIT vs. an industry average of 11.7x. Further, TMUS is growing EBIT over twice as fast as its competitors and has attractive lower price points. We also continue to believe TMUS is a primary take-out candidate for the MSOs, helped by AT&T's (T - Get Report) acquisition of DTV. We believe AT&T can now offer a compelling quad-play plan, which may drive the MSOs to add a wireless component to their offerings if AT&T can regain share. We also believe Charter Communications (CHTR - Get Report) would be interested once it closes the acquisition of Time Warner Cable (TWC) , which should be a 1Q16 event.

TheStreet Rating: Buy, B-
TheStreet Said: 
TheStreet Ratings team rates T-MOBILE US INC as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:

"We rate T-MOBILE US INC (TMUS) a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations, expanding profit margins, solid stock price performance and notable return on equity. We feel its strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth significantly trails the industry average of 56.2%. Since the same quarter one year prior, revenues rose by 13.8%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Net operating cash flow has increased to $1,161.00 million or 19.69% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 5.40%.
  • The gross profit margin for T-MOBILE US INC is rather high; currently it is at 50.39%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 4.41% trails the industry average.
  • Compared to its closing price of one year ago, TMUS's share price has jumped by 37.26%, exceeding the performance of the broader market during that same time frame. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.
  • T-MOBILE US INC's earnings per share declined by 12.5% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, T-MOBILE US INC turned its bottom line around by earning $0.29 versus -$0.10 in the prior year. This year, the market expects an improvement in earnings ($0.95 versus $0.29).

 

VG Chart VG data by YCharts

2. Vonage Holdings Corp. (VG - Get Report)
Market Cap: $1.2 billion
YTD Return: 51.2%

Oppenheimer said: Vonage looks very inexpensive here, trading at ~8x EBITDA vs. its cloud peers trading at 13.5x FY16E EBITDA. On top of this, we believe VG can take out another $50M-$100M in marketing costs from consumer to roll up the SMB space. VG's acquisition of iCore Networks for 1.3x revenue illustrates VG's ability to roll up the UCaaS space at very attractive valuations.

TheStreet Rating: Hold, C
TheStreet Said: 
TheStreet Ratings team rates VONAGE HOLDINGS CORP as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:

"We rate VONAGE HOLDINGS CORP (VG) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, compelling growth in net income and good cash flow from operations. However, as a counter to these strengths, we find that the company's return on equity has been disappointing."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • VG's revenue growth has slightly outpaced the industry average of 5.0%. Since the same quarter one year prior, revenues slightly increased by 1.4%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Diversified Telecommunication Services industry. The net income increased by 51.3% when compared to the same quarter one year prior, rising from $5.52 million to $8.35 million.
  • The current debt-to-equity ratio, 0.48, is low and is below the industry average, implying that there has been successful management of debt levels. Despite the fact that VG's debt-to-equity ratio is low, the quick ratio, which is currently 0.50, displays a potential problem in covering short-term cash needs.
  • The gross profit margin for VONAGE HOLDINGS CORP is rather high; currently it is at 67.35%. Regardless of VG's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 3.76% trails the industry average.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. In comparison to the other companies in the Diversified Telecommunication Services industry and the overall market, VONAGE HOLDINGS CORP's return on equity is significantly below that of the industry average and is below that of the S&P 500.

 

CCOI Chart CCOI data by YCharts

3. Cogent Communications Holdings Inc.   (CCOI - Get Report)
Market Cap: $1.2 billion
YTD Return: -22%

Oppenheimer said: We believe CCOI's 4.8% dividend yield and shareholder-friendly return of capital policy should support the stock. Further, benefits from port capacity upgrades should be seen by 4Q15, and legal costs should be largely behind the company, both acting as catalysts.

TheStreet Rating: Hold, C
TheStreet Said: 
TheStreet Ratings team rates COGENT COMMUNICATIONS HLDGS as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate COGENT COMMUNICATIONS HLDGS (CCOI) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • CCOI's revenue growth has slightly outpaced the industry average of 5.0%. Since the same quarter one year prior, revenues slightly increased by 4.4%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • The gross profit margin for COGENT COMMUNICATIONS HLDGS is rather high; currently it is at 57.07%. Regardless of CCOI's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 0.85% trails the industry average.
  • COGENT COMMUNICATIONS HLDGS's earnings per share declined by 33.3% in the most recent quarter compared to the same quarter a year ago. The company has reported a trend of declining earnings per share over the past year. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, COGENT COMMUNICATIONS HLDGS reported lower earnings of $0.02 versus $1.19 in the prior year. This year, the market expects an improvement in earnings ($0.12 versus $0.02).
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Diversified Telecommunication Services industry and the overall market, COGENT COMMUNICATIONS HLDGS's return on equity significantly trails that of both the industry average and the S&P 500.
  • The company, on the basis of change in net income from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and greatly underperformed compared to the Diversified Telecommunication Services industry average. The net income has significantly decreased by 30.5% when compared to the same quarter one year ago, falling from $1.21 million to $0.84 million.