S&P thinks telecom stocks may be poised for a rebound

Posted Jun 23rd 2008 1:52PM by Eliza Popescu
Filed under: Forecasts, Deals, Competitive Strategy, Apple Inc (AAPL), AT and T (T), ALLTEL Corp (AT), Verizon Communications (VZ), Economic Data

During the challenging market conditions over the past year, the telecom sector has felt its fair share of the pain. BusinessWeek brings Standard & Poor's Todd Rosenbluth who suggests that some of these telecommunication stocks could now be good investments for traders as they have a safe dividend.

Despite worries tied to the slowing U.S. economy and increased competition, "we think that some of the concerns are overdone and believe selective stocks are attractively valued," Rosenbluth stated. Rosenbluth also noted that telecom stocks have started showing signs of recovery for the past few weeks, helped by the launch of new handsets and merger and acquisition agreements.

Some of investors' favorite companies are AT&T Co. (NYSE: T) and Citizens Communications Co. (NYSE: CZN). Rosenbluth believes that the launch of Apple (NASDAQ: AAPL)'s new iPhone, 3G iPhone, will stir increased demand for smartphones, helping such companies, while putting pricing pressure on some of their competitors.

Another big event that could change the course of events in the telecom sector might be Verizon Wireless (NYSE: VZ)'s acquisition of Alltel. This could lead to lower roaming costs and consolidation of back-office expenses. In addition, there is always enough room for other unexpected merger deals that could have a major impact on the sector.

On the negative side, telecom service providers have been facing challenges from wireless substitution and cable competition. However, Rosenbluth is confident that companies like AT&T and Verizon will be able to successfully surpass such obstacles by posting significant broadband and video gains.

So, the sector still has its risk, but according to S&P the time could be right to start to include the sector in your stock screens.

What are your thoughts on the overall sector? Have you been seeing some buying opportunities out there, or are you staying away all together? Let us hear your thoughts, we are curious what our readers think about this sector!

Eliza Popescu is a financial writer for the online investment advisory service Investor's Observer.

Tags: AAPL, Alltel, Apple, ATT, Citizens Communications, CitizensCommunications, czn, iPhone, smartphones, Standard Poors, StandardPoors, t, telecom, Verizon, Verizon Wireless, VerizonWireless, VZ