Hard-hit communication stocks may bear bargains

THE most battered sector in the U.S. stock market this year is communication services. This group of stocks has fallen 38 percent this year through Oct. 28, the worst performance among the 11 sectors recognized by the S&P.

Do bargains lurk in the tattered sector? I think so.

Here are my thoughts on the five largest communications services stocks, plus Twitter, which is in the spotlight because it’s just been bought by Elon Musk, the world’s richest man.

Alphabet ($1.26 trillion market value) is the parent to Google, the most widely used search engine. It owns Youtube, an eyeball magnet. It owns Waymo, which I believe is the leader in the race to develop a reliable self-driving car. And it owns Deep Mind, which works with artificial intelligence. Alphabet is down 34 percent this year through Oct. 28. After this downturn, the stock sells for 19 times recent earnings. That’s more than I will normally pay, but I consider Alphabet the most innovative company in the U.S.

Meta Platforms ($266 billion), formerly Facebook, depends on ad revenue, which is falling lately. In addition to Facebook, Meta also has two very popular platforms, Instagram and Whatsapp. It has close to $42 billion in cash or marketable securities. On the minus side, I think regulators will continue to give Meta a hard time about how it gathers and shares people’s personal data. Meta stock has fallen from above $350 to just below $100 in the past year, making the stock tempting. But there are other choices in the sector I like more.

Walt Disney ($193 billion) owns theme parks, movie studios (Disney, Pixar, Lucasfilm and Marvel), characters and franchises such as Star Wars, ABC TV, ESPN and Hulu. Further progress in fighting the COVID-19 pandemic would help Disney, bolstering attendance at movie theatres and theme parks.

T-mobile US ($189 million), which is 48 percent owned by Deutsche Telekom, has been adding subscribers at a faster rate than AT&T or Verizon. It acquired Sprint in 2020, and it recently struck a deal with Elon Musk’s Spacex to provide wireless service to “dead spot” rural areas of the U.S. These developments have excited investors, who have pushed T-mobile shares up 32 percent this year in a down market. I don’t recommend the stock, though. It sells for 110 times recent earnings — far too high a multiple for my taste. And finances seem shaky, with debt greater than stockholders’ equity.

Verizon, like other phone companies, has become a broadband carrier offering combination packages of phone service, internet and television. It also owns AOL and Yahoo. A strong point is the dividend yield, 6.8 percent. A weak point is the debt level, 1.99 times stockholders’ equity. I think the stock will do okay, but there are others I prefer.

Twitter is a wild card, after Elon Musk bought the company, giving shareholders a 26 percent gain for this year. We don’t know what Musk will do with the company. Musk has had big successes with Tesla and Spacex, but for any internet forum, the problems of hate speech and distortion of facts are real and can’t be easily solved by algorithms. We’ll see what the new “Chief Twit” does.