Hopes of a possible trade deal between the United States and China as well as a solid round of fourth quarter earnings have seen money flow into the industrial goods and basic materials sectors in first six weeks of 2019. Over the same period, high-dividend telecommunication stocks have underperformed the broader market as investors chase growth over income.
If analysts cut earnings growth projections for upcoming quarters, telecommunication issues could benefit from sector rotation as investors jump back into high-yielding names that generate the lion's share of their revenue in the United States, providing protection against a strong U.S. dollar, a slowing global economy and unresolved trade tensions. According to FactSet, as reported by MarketWatch, analysts expect earnings of S&P 500 companies with a U.S. focus to grow more than three times faster than those firms with a significant international orientation.
Traders who anticipate buying interest returning to telecommunication stocks over the coming weeks and months should consider adding these three leading names to their watch list. Let's look at three swing trading opportunities.
AT&T Inc. (T)
AT&T Inc. (T) provides communications and digital entertainment services. The Dallas-based company operates through four segments: Business Solutions, Entertainment Group, Consumer Mobility and International. AT&T's wireless communications business, operating under its Business Solutions arm, generates roughly 40% of revenue, while about 30% of sales come from the company's Entertainment Group segment. The company rolled out its long-awaited mobile 5G network in 12 cities across the United States in December 2018 and plans to release Samsung 5G phones in early 2019.
AT&T stock trades at 10.7 times earnings, slightly below the industry average multiple of 11. With a market capitalization of $221.88 billion and offering a dividend yield of 6.85%, AT&T stock is up 8.55% year to date (YTD), underperforming the S&P 500 by 2.41% over the same period as of Feb. 18, 2019. The AT&T share price has formed an inverse head and shoulders (H&S) pattern over the past four months. Traders should consider taking a momentum play if price breaks above the pattern's neckline and 200-day simple moving average (SMA) at $31. Look to lock in some profits on a test of the September and October swing highs while letting a portion run. Close losing trades by positioning a stop-loss order just below the 50-day SMA.
Verizon Communications Inc. (VZ)
With a market cap of $227.92 billion, Verizon Communications Inc. (VZ) offers communications, information and entertainment products and services to its customers that include consumers, businesses and governments. The company derives about 70% of revenue from its wireless business. Although the telecommunications conglomerate missed the Street's fourth quarter revenue expectations, it added almost twice as many new wireless subscribers compared to what analysts had expected. Verizon expects to increase capital expenditure in 2019 as it expands the commercial launch of its 5G wireless technology. As of Feb. 18, 2019, the company's stock has returned -0.81% YTD. Investors receive a 4.46% dividend.
Verizon shares have struggled to gain traction in 2019 as investors grow cautious about the company's flat 2019 year-over-year earnings per share (EPS) guidance. Despite downbeat sentiment, the stock sits near the support of a trendline extending back to mid-June and the 200-day SMA from which a bounce could occur. Swing traders who buy at the current price should look for a move back up to the $60 level, where the issue may find resistance from the November swing high. Think about placing stop orders beneath this month's low at $53.02 to protect trading capital.
CenturyLink, Inc. (CTL)
Headquartered in Monroe, Louisiana, CenturyLink, Inc. (CTL) provides a range of communications services, primarily to customers in the United States. The company's $34.6 billion acquisition of Level 3 Communications in 2017 saw it target more business customers, which now account for about 75% of revenue. CenturyLink stock hit a 22-year low on Thursday, Feb. 14, after it slashed its dividend by more than half to focus on debt reduction. CenturyLink stock, with a market cap of $14.85 billion, is down nearly 10% on the year as of Feb. 18, 2019.
Shareholders haven't had much to smile about in recent times, with the share price falling over 30% in the past five months. The stock traded down as much as 13.33% after the unexpected dividend cut to form an inverted hammer, a bullish reversal candlestick, that found support on the lower trendline of a falling wedge pattern. Buyers sensed capitulation and drove the stock up more than 7% Friday, triggering a short covering rally in the process. Bullish divergence between price and the relative strength indicator (RSI) further suggests a weakening of the bears' stranglehold on the stock. Those who take this high-risk/high-reward trade should set a profit target between $18 and $19, where the stock may encounter resistance from the Nov. 9 earnings gap and the 200-day SMA. Cut losses if price closes below Thursday's inverted hammer candlestick.