Sector: Technology/Telecommunications Services
Industry: Wireless Communications Services
Stop loss: $5.73
Take profit: $8
Investment horizon: until the end of 2019
We consider the whole industry in this trading recommendation — Wireless Communications Services. The emphasis on it is made because of the highly probable proximity of the market to the beginning of the recession, which is indicated by the yield curve of the US government bond market. Being defensive, the Telecommunications Services sector usually shows strength at the final stage of the business cycle and throughout the entire period of economic slowdown.
In addition, the Wireless Communications Services industry is actively implementing a new high-speed wireless Internet technology 5G internet. This is an important and powerful driver for the growth of capitalization of corporations that will successfully lead this process.
Therefore, in this investment idea, we have prepared a sample of issuers that may be interesting in terms of portfolio diversification and timing. The undisputed industry leaders are AT&T Inc ($T), T-Mobile US Inc ($TMUS) and Sprint Corporation ($S).
We were interested in the discussed merge of T-Mobile US Inc ($TMUS) and Sprint Corporation ($S) corporations. This transaction may create the second largest corporation in the United States (after AT&T Inc) in the Wireless Communications Services sector. As a result, with the successful implementation of the merger the value of the share capital of the newly created business will increase.
Sprint Corporation ($S) is preferred because it currently costs substantially less than its competitors in Price/Revenue (TTM), P/S, P/B and EV/EBITDA multipliers and also has the lowest beta (0,5012) to the index that best allows diversifying the investment portfolio.
Technical analysis (trading plan)
While the broad stock market grew during 2016–2017, securities from the telecom sector were adjusted.
Around the middle of 2018, $TMUS and $S shares halted their decline and at the end of 2018 — the beginning of 2019 mid-term price bases formed on the stock market, showing the interest of buyers. According to our expectations from these savings the upward movement in both stocks will continue after the release of the next positive news.
The figure below shows the trading plan for the Sprint Corporation stock: