U.S stocks started 2016 with a painful correction, with the S&P 500 having fallen by more than 11% during the first six weeks of the year. Telecom stocks were among the first to halt the fall and recover from the sell-off, so it is no wonder that hedge funds awarded them more attention during the first quarter. Overall, the Dow Jones U.S. Telecommunications Index is currently up by roughly 14% in 2016, outpacing the S&P 500 by ten percentage points. In this article we’ll take a look at five telecom stocks hedge funds like the most and see how they were being traded in the first quarter.
Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see more details here).
Not Much Love For SBA Communications
Among the telecom giants, SBA Communications Corporation (NASDAQ:SBAC) was the only stock that fell out of grace with some of the collective of top hedge funds that Insider Monkey tracks. The number of shareholders of the stock among those investment firms fell to 42 from 50 during the first quarter, though their combined holdings represented more than 16% of the company’s common stock. Farallon Capital, managed by Thomas Steyer, holds a significant position in SBA Communications Corporation (NASDAQ:SBAC), having increased it by 87% during the quarter to 2.97 million shares worth $297 million at the end of March. The company reported mixed first quarter results that put a dent in its stock recovery; SBA Communications Corporation (NASDAQ:SBAC) posted a profit of $53.6 million or $0.07 per share on an adjusted basis, while analysts were looking for $0.08 per share. Revenue came in at $399.8 million, slightly higher than analysts’ consensus estimate of $398.2 million. Analysts at Deutsche Bank recently reiterated their ‘Hold’ rating for the stock and reduced their price target on it to $102 per share, from $106 per share.
Good Time to Buy AT&T?
One of the largest U.S telecom companies, AT&T Inc. (NYSE:T) was held by 51 top hedge funds at the end of March, up from 48 registered three months earlier. Their ownership, however, amounts to just 1.3% of the company’s outstanding stock. AT&T Inc. (NYSE:T) is one of the telecom stocks that Arrowstreet Capital added to its equity portfolio during the first quarter, as the fund acquired more than 22.4 million shares of the company, worth $880 million during the period. Cliff Asness also hiked his fund’s stake in AT&T during the first three months of the year, with AQR Capital Management holding 5.91 million shares worth $231 million at the end of March, up by 139%. So far this year, AT&T Inc. (NYSE:T) has been on a solid uptrend, gaining 18% year-to-date. Even after this surge, the stock is still cheaper compared to its peers: its current P/E multiple of 17.00 is significantly lower than the industry average of 25.00. Shareholders receive annual dividend payments of $1.90 per share, which amounts to a yield of 4.70%.
On the next page we’ll discuss three other telecom giants that top hedge funds are bullish on.
Level 3 Communications Gains Boost as P/E Languishes
The popularity of Level 3 Communications, Inc. (NYSE:LVLT) also gained a boost during the first quarter, with the number of hedge funds invested having reached 52, or 6.8% of the funds followed by Insider Monkey, up from 41 at the start of the quarter. The combined holdings of those 52 funds amounted to 17.9% of the company’s common stock. Mason Hawkins‘ Southeastern Asset Management is betting big on Level 3 Communications, Inc. (NYSE:LVLT), having a position in the stock which accounts for roughly 15% of its equity portfolio. According to its latest 13F filing, the fund holds 30 million shares of the company, valued at $1.58 billion. Level 3 Communications, Inc. (NYSE:LVLT) has a market cap of $19 billion and does not pay a dividend. The stock is currently trading at a trailing Price-to-Earnings (P/E) ratio of 5.49, significantly lower than the industry average of 19.00, as reported by Morningstar. Shares are down by 2% this year.
T-Mobile Trying to Entice Customers By Making Them Owners
At the end of the first quarter, T-Mobile US Inc (NASDAQ:TMUS) could be found in the portfolios of 52 of the elite hedge funds in our system, up from 50 a quarter earlier. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, was among those that initiated a fresh stake in T-Mobile US Inc (NASDAQ:TMUS) during the quarter, amassing 2.96 million shares worth north of $113 million. Billionaire Andreas Halvorsen also joined the party, with his fund Viking Global having bought 2.68 million shares valued at $102 million during the quarter. The management of T-Mobile US Inc (NASDAQ:TMUS) has resorted to unconventional measures to try and attract more subscribers. Current customers will get one share of T-Mobile, currently trading at $42.30 apiece, and will have the option to gain up to 100 shares per year by referring new clients. A prolific tweeter, T-Mobile CEO John Legere, wrote on the social network: “The carriers want to screw you. We want to take you to dinner and a movie.” The company is also offering coupons for free pizza and movie rentals.
Troubles Ahead for Verizon?
The hedge funds in our database stepped up their interest in Verizon Communications Inc. (NYSE:VZ) during the first quarter, as the number of long positions in the stock rose to 61 from 52. Warren Buffett‘s Berkshire Hathaway is still the largest shareholder of Verizon Communications Inc. (NYSE:VZ) in our database, as it holds a little over 15 million shares worth $811 million at the end of March. Meanwhile, Phill Gross and Robert Atchinson’s Adage Capital Management lifted its stake by 46% to 6.07 million shares valued at $328 million. The stock recovered quickly from the selloff at the beginning of 2016 and rose by 29% before settling into a trading range between $50 and $54 per share. At a recent telecom conference in London, Verizon Communications Inc. (NYSE:VZ) Chief Financial Officer Fran Shammo, said that the company’s second quarter earnings will be affected by the recent seven-week strike of its wireline employees. According to Mr. Shammo, Verizon expects a $0.05-to-$0.07 impact on its bottom line from the ordeal.