Even If The Market's 'Flight To Safety' Ends, Barclays Still Recommends Sprint And T-Mobile

According to Barclays’ Amir Rozwadowski, “Despite energy's second quarter rally, telecom and utilities remain the top performing sectors in the market year-to-date as investors seem focused on comparatively defensive positioning given broader global volatility.”

Increasing Returns

Rozwadowski mentioned performance has been driven to a large extent by multiple expansion, with returns for both the telecom and utilities sectors increasing more than 20 percent since the beginning of the year.

In the telecom sector, the S&P Telecom Services Index gained 22 percent year-to-date, as compared to the 3 percent gain in the S&P 500, driven by dividend-rich yielding names.

Sprint And T-Mobile

“Going forward, while it's difficult to predict if the ‘flight to safety trade’ will remain intact/disperse, we believe certain company specific fundamentals should be worth noting,” Rozwadowski stated.

The analyst expects Sprint Corp S and T-Mobile US Inc TMUS to lead gains in 2Q.

Despite both names having underperformed the market in 1Q, the trends reversed and the companies saw positive gains.

On the other hand, both America Movil SAB de CV (ADR) AMX and Centurylink Inc CTL outperformed the marked in 1Q but underperformed in 2Q, despite their above market dividend yields.

Industry Trends

The analyst also pointed out that while towers were gaining momentum, the data center sector was showing no signs of slowing down and was the best performer in the communications infrastructure segment.

“The sector as a whole remains one of the few secular demand stories in the U.S.,” Rozwadowski went on to say.

The analyst believes that while industry trends are favorable, recent valuation trends indicate that these trends were not totally unexpected.

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