J.P. Morgan's 4 Top Telecom and Tower Stocks to Buy for September

Telecom & Wireless

Published: September 3, 2014 8:30 am

While technology has blistered the rest of market with returns over 20% this year, many of the top telecom, cable and satellite stocks have trailed. Investors who have racked up these strong portfolio gains may be looking for a sector where they can stay actively invested, but shift some of their technology capital to stocks with more upside potential for the near and distant future.

In a new research report out from J.P. Morgan, the analysts covering telecom services, cable and satellite stocks have a solid shopping list for September and the rest of the year. They have devised a points system that they apply to their top stocks to buy. These point allocations are driven by shorter-term catalysts such as seasonality or competitive developments.

J.P. Morgan has come up with four top telecom stocks to buy for September that could bring investors outstanding gains. Interestingly enough, these are not all just high-dividend companies that were screened out. Here is that list of four top telecom stocks.

CenturyLink Inc. (NYSE: CTL) is the largest of the rural local exchange carriers (RLEC) and is expected to get a large dose of government money this year and beyond to provide Internet service in rural areas. Analysts believe the company will get the largest chunk of the money at $497 million for 2014. This compares to $350 million in frozen support they received in 2013. The company is one of the largest telecommunications firms in the United States and a global leader in cloud infrastructure and hosted IT solutions for enterprise customers.

The J.P. Morgan analysts feel that with company assets likely to be headed for a real estate investment trust (REIT) structure, the prospects for income investors are even more enticing, and shares of the company could be driven higher as the structural change nears completion. Investors are paid an outstanding 5.27% dividend from the company, which looks to be sustainable. The J.P. Morgan price target for the stock is $43. The Thomson/First Call consensus price target is $38.30. CenturyLink shares closed Tuesday at $40.86.

T-Mobile US Inc. (NYSE: TMUS) is a stock in which offers and rumors continue to fly around Wall Street. With the deal with Sprint off the table, and a bid for 56% of the company from Iliad on the table, the J.P. Morgan team not only likes the company’s business prospects, but they are also bullish on further M&A possibilities. While they don’t see the Iliad bid accepted at the low $33 price target, they do feel that it puts a floor in for the stock price, a huge positive for investors.

The impending iPhone 6 launch should stand to boost T-Mobile’s momentum in the fourth quarter, as many consumers are holding off on switching wireless providers, waiting for the next bigger and better model to be released. The J.P. Morgan price target is $40, and the consensus target on Wall Street is $36.05. Shares closed Tuesday at $30.43.

SBA Communications Corp. (NASDAQ: SBAC) owns and operates wireless communications towers in the United States, Canada, Costa Rica, El Salvador, Guatemala, Nicaragua, Panama and Brazil. The company leases antenna space primarily to wireless service providers on towers and other structures that it owns, manages or leases from others. The firm has seen solid earnings estimate revision activity over the past three months, suggesting analysts are becoming a bit more bullish on the firm’s prospects in both the short and long term.

The J.P. Morgan team feels that the secular story for towers is improved with the T-Mobile-Sprint deal off the table, as carrier consolidation is less likely at this point. They have a $125 price objective for SBA Communications stock, and the consensus target is $119.60. The stock closed trading Tuesday at $110.47.

Verizon Communications Inc. (NYSE: VZ) is the top carrier name to emerge from the J.P. Morgan list for September, and it continues to be a great growth and income stock for investors. The research report indicates that the company continues to see solid business momentum in both wireless and wireline, but the analysts caution that competition levels in both areas are rising. They do expect to see a strong back-to-school season for both voice and tablet products, with some iPhone 6 refresh impact, depending on the new product launch date and availability of supply.

In wireline, they report that Verizon continues to benefit from FIOS programming momentum and expect margins to improve going forward. Investors are paid an outstanding 4.25% dividend. The J.P. Morgan price target is set at $59, and the Wall Street consensus is $54.50. Shares closed Tuesday at $49.77.

While many firms we cover are still very positive on the technology sector, as the old saying goes, “nobody ever went broke taking a profit.” Investors looking to secure some long-term technology gains and shift the capital may want to look at these four top telecom stocks. They offer solid growth, and a somewhat more defensive posture in what is now a pricey market.

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