We are just weeks to the end of 2022. That means it’s time to deliver our telecom stock picks for 2023.
It hasn’t been a good year for telecom stocks. As of Dec. 1, the S&P 500 communication services sector was down 35.2%, making it the worst-performing of the 11 sectors that make up the index.
Looking to the year ahead, S&P Global Market Intelligence’s Big Picture: 2023 Technology, Media and Telecommunications Industry Outlook report had something to say about telecom stocks.
“Many of the giants of the global telecom services industry are limping toward the end of 2022 with their financial performance beaten down by a combination of factors, including inflation and increasing competition, especially from mobile virtual network operators and private fiber networks,”
Pg. 8 of its report stated.
“Underwhelming adoption of 5G services and devices has also weighed on the sector.”
Thus, Investors will need to be selective in 2023.
To come up with our list of the top telecom stocks in 2023, I started with the S&P Composite 1500. Filtering out those companies in entertainment or media, I’m interested in businesses expected to grow in 2023 and beyond while also being relatively conservatively financed by industry standards.
Based on these parameters, these are our three top telecom stock picks for 2023.
Yelp’s (NYSE:YELP) stock has not performed for shareholders in recent years. It’s down more than 18% year-to-date and 25% over the past five years. However, if you bought IPO shares in March 2012, you’ve doubled your money, with a compound annual growth rate of 6.8%.
It’s not great relative to the S&P 500, which has a CAGR of 10.8% over the same period, but at least it’s positive.
Yelp reported a mixed bag in Q3 2022.
The online content platform that connects local businesses with consumers reported that its revenue was $308.9 million, 15% higher than a year earlier and 3.3% better than its record revenue in the second quarter. That was in line with analyst estimates. However, on the bottom line, its earnings per share fell 43.5% to 13 cents.
“We saw particularly strong third-quarter results in our services categories, with year-over-year growth accelerating from the second quarter to 15%, driven by an approximately 25% year-over-year increase in our home services category,” said David Schwarzbach, Yelp’s chief financial officer.
For all of 2022, it expects revenue of $1.19 billion at the midpoint of its guidance with an adjusted EBITDA of $270 million.
Based on its revenue for 2022, it’s trading at 1.8x sales, the lowest valuation in its 10-year history as a public company. Yelp is a screaming buy in the communication services sector if you’re a value investor.
ATN International (ATNI)
ATN International (NASDAQ:ATNI) is one of those essential communications infrastructure providers for rural and remote markets. The internet is the great equalizer, and rural markets remain underserved relative to those who live in big cities.
It’s been busy making strategic acquisitions in 2022. On Nov.7, it announced it had completed the purchase of Sacred Wind Communications, a provider of rural telecommunications in New Mexico. In the third quarter, the company’s broadband in homes grew by 9% to 613,600, adding fiber and other higher-speed solutions to 29,000 homes. Approximately 54% of its subscribers now have fiber or other high-speed networks, up from 41% a year ago.
Meanwhile, its International Telecom business grew its mobile subscribers by 9% to 356,000.
It is working with several native Alaskan corporations to connect 25 communities in Alaska’s Yukon Delta region, providing residents, healthcare facilities, and schools with high-speed internet for the first time.
In Q3 2022, ATN finished the quarter with 9,756 fiber route miles. According to a recent report from S&P Global Market Intelligence, the average price paid for a mile of fiber since 2015 was $99,345. That values ATN’s fiber just under $1 billion.
Its market capitalization is less than that, providing investors with another excellent value play in a growing business.
Iridium Communications (IRDM)
At the time, it was the second-largest holding of Wood’s ARK Space Exploration & innovation ETF. As I write this, it’s still the second-largest holding with a 7.43% weighting.
The company’s low Earth orbit (or LEO) satellite network could be a game-changer in telecommunications. Not only that, but its margins are pretty good, too.
In the third quarter that ended Sept. 30, Iridium’s OEBITDA (operational earnings before interest, taxes, depreciation, and amortization) was a record $107.8 million, 8% higher than in Q3 2021. That’s an OEBITDA margin of 59% on higher revenues from all three of its operating segments.
For all of 2022, it expects total service revenue to be 8.5% higher at the midpoint of its guidance than in 2021. That’s up from its previous guidance of 8%. On the bottom line, its full-year OEBITDA is projected at $420 million, 11% higher than a year ago.
By the end of 2023, it believes its net leverage could be as low as 2.5x OEBITDA, 26% lower than at the end of 2021.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.