The Communication Sector

Nate Crosby |
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Spotlight #3 – Communications Sector 

For our lucky listeners enjoying sunshine right now – I’m talking to you Florida – make sure you soak up some extra vitamin D for us! As many of us fire up our streaming services and hunker down for snowmageddon, let’s take a deeper look at the communications sector! 

 

Spoiler alert – the podcast today revealed that Derek doesn’t have TikTok. Didn’t see that coming!

 

What makes up the communications sector? 

The wide range of capabilities makes this sector somewhat unique. We’re talking infrastructure, entertainment, and social media. Think fixed-line, cellular, wireless, high-band, fiber optics, voice, video, phone, text, gaming. 

 

The Stats

Sector weights (S&P 500) 

  • Utilities – 2.4% 
  • Consumer staples – 5.6% 
  • Communications – 10.8% 

A look back 

  • It’s out-performed the S&P 500 9 of the last 20 years 
  • Since 2000, we’ve seen .8 market correlation – higher than other sectors we’ve looked at 
  • CAGR of 7.78% since 2005

 

Who are some of the big communications sector companies? 

The wide range of specializations brings in companies of all ages and sizes. Today we’re looking primarily at the top two – Meta Platforms (formerly Facebook) and Alphabet (Google) as they make up about 35% of the sector. Side note – the fact that two companies make up that large of a percent makes this sector both unique and interesting. More to come on that. 

 

What does this mean for CAG? 

We’ve added Vanguard’s VOX to our tilt and have Meta Platforms and Alphabet on our watch list. These two companies alone have PEs of 22 and 26 respectively. They are fast growing (fun fact – since 2000 Google has averaged 21% annual growth) and seem well positioned – two things we look for when investing. 

Let the numbers speak for themselves – shall we: 

  • Meta Platforms – trailing 12 mo reported $112B & a 42% increase YoY 
  • Alphabet – trailing 12 mo reported $239B & a 39% increase YoY 

Let’s not forget about some of the other players in this sector – Walt Disney, Netflix, AT&T, Comcast. If you had to guess where the majority of Walt Disney’s earnings are coming from – would you say theme parks or media? In 2020 the company reported $16.5 B for theme parks and media drew a whopping $50 B. My family is in the midst of planning a trip to Disney and I must say my gut reaction was theme parks! In 2020 Netflix reported $24 B and recently got some attention with investments from a couple large shareholders – another one to keep an eye on. Communications giant, AT&T, pulls in $181 B in revenue, while Comcast is sitting at $43 B. 

Don’t let gaming off the hook in all this because who doesn’t have a teenager that stays up all night playing Fortnite!? Activision Blizzard, Electronic Arts, Take-Two Interactive are all on our radar. 

Like we said – this sector is filled with all shapes and sizes. 

 

Opinion piece: To buy the sector or to go it alone – that is the question! 

The communications sector brings the potential for growth and income – two things that cause us to take action. How to do that - well that’s the question … 

  • Derek would buy the sector and then add individual exposure
  • Nate is going solo and building his own collection of fading and raising companies 

Remember: the future tends to favor the brave 

 

Resources we like: