Transcripts

Telecoms Dial Up A Turn Around

LINDA O`BRYON: If you think oil has been the best performing industry group this year, well, actually you`re wrong. It is telecom, a sector that had been out of favor for years. Erika Miller reports on what`s behind the telecom turnaround.

ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: After years of lagging performance, telecom stocks are reconnecting with investors. Since January, shares of AT&T, Bellsouth and Verizon have rocketed double digits. That has helped make telecommunications services the top performing sector this year. The group is up 11 percent, followed by energy at 6 percent and materials at 4 percent. Analysts say there has been a palpable change in investor attitude towards telecom.

DAVID BARDEN, TELECOM ANALYST, BANC OF AMERICA SECURITIES: I think as we`ve come into the new year, as risk tolerances have risen, as people have started to look for places to outperform at the margin, I think people are just not as convinced to be as bearish about telecom as they were in the last half of last year.

MILLER: Many investors are drawn to the companies` strong cash flows, stock buybacks and dividend hikes. An even bigger lure is the almost insatiable demand world wide for broadband connections. AT&T, Bellsouth and Verizon have all been upgrading their networks to carry video, attracting new customers. But many analysts worry about rising competition from cable operators like Comcast and Cablevision, which also offer these services. In addition, regional bells are facing slowing growth in their wire line businesses, as customers increasingly use mobile phones for long distance calls and Internet connections. As a result, many telecom experts say the best investment opportunities are in the wireless arena.

BARDEN: We think the biggest opportunity to profit in telecom is to look at the superior fundamentals of the wireless businesses, look at their overall relatively stable valuations in line with wire line and recognize that there should be an opportunity to profit from those superior fundamentals.

MILLER: His top picks are Sprint-Nextel and Alltel. Both those companies have done investment banking and other business with Bank of America in the past year. Other analysts recommend wireless equipment companies, like Motorola which could benefit from a big surge in handset purchases this year.

KENNETH LEON, TELECOM EQUIP. & SVCS ANALYST, STANDARD & POOR`S: What we see as dynamic for this year and going out into the next few years is wireless TV and wireless mobile. These are going to be feature functions on handsets that will allow users to download either on let`s say Verizon V-cast services or Sprint, a song for $1.99 to $2.50.

MILLER: Analysts predict more interest in the wireless sector when Sprint and Alltel become pure wireless plays. Both companies have plans to spin off their landline businesses in the next few months. Erika Miller, NIGHTLY BUSINESS REPORT, New York.