Looking for stocks to buy today? It's not an easy task. While many high-quality companies set to survive the coronavirus or even thrive in the stay-at-home economy have bounced back in a big way, many bargain-priced stocks in the market are cheap for a reason, as they still have huge question marks hanging over them.
Theoretically, the best buys would be stocks that are not only resilient to a coronavirus recession, but also those that could also take market share from competitors in this new environment. Oh, and they have to be reasonably priced, too. Good luck!
There aren't many stocks with all those characteristics today, but T-Mobile (TMUS -0.08%) is one company that satisfies all of these criteria. That's why it's been my biggest buy over the first part of April, after March's historic market swoon.
Incoming CEO Mike Sievert. Image source: T-Mobile.
Reason 1: A recession-proof business
If the U.S. population has to practice social distancing for an extended period of time, the last thing they're likely to cut is their mobile phone service. Mobile subscriptions are recurring, highly predictable revenue streams that make large telecoms relatively stable buys even in hard times.
However, in a recession, T-Mobile might be especially well positioned. That's because T-Mobile is a lower-priced option than competitors Verizon (VZ -0.68%) and AT&T (T -1.37%), while the other two large carriers have traditionally been regarded as having superior networks and more coverage.
But T-Mobile's network has been catching up to the leaders in recent years, to the point where its coverage, speeds, and data capacity is pretty close to even. And if T-Mobile offers lots of service in your ZIP code, odds are that you won't need the most comprehensive nationwide coverage in very far-flung parts of the country as you shelter in place.
T-Mobile also had a history of customer-friendly moves that it calls "Un-carrier" moments, which have dragged competitors along to offer more benefits for consumers over time. These include introducing unlimited data plans, offering unlimited 480p video streaming, ending annual service contracts, including all taxes and fees in the price of plans, and other customer-friendly moves that have disrupted the wireless industry.
That customer-friendly ethos has enabled T-Mobile to grab more and more market share over the years, capturing 80% of all postpaid industry growth since 2013. Customers have grown from 63.3 million at the end of 2015 to 86.0 million at the end of 2019, providing T-Mobile not only with industry-leading revenue growth, but even greater profit growth, as the company achieves operating leverage by adding more and more customers over its network.
In trying economic times, customers may be looking to trim their costs wherever possible, meaning there's great potential for more people to discover T-Mobile's value proposition and switch over.
Reason 2: Upside from the Sprint deal
Not only does T-Mobile have defensive qualities as a low-cost provider of mobile services, but it also closed on its $26 billion acquisition of Sprint on April 1, after two long years of regulatory scrutiny.
As a result of the merger, T-Mobile predicts a whopping $6 billion in synergies, with much of this easily attainable from combining both companies' networks.
But even more important than cost synergies are the revenue synergies both companies can achieve as they combine each company's owned spectrum into a comprehensive nationwide 5G network. T-Mobile owns lots of mmWave spectrum, which will provide for lightning-fast 5G connections in dense urban areas but doesn't travel very far or through material very well. T-Mobile also owns low-band 600 MHz spectrum, a slower spectrum that can travel far and penetrate walls in less dense suburban and rural environments. Meanwhile, Sprint has lots of mid-band 5G spectrum that is best used in metro settings in between the two. Combined, the two companies now have an end-to-end spectrum inventory over which it can deploy nationwide 5G in all types of geographies.
Image source: T-Mobile Merger presentation.
Since 5G will such a powerful technology transition, it's possible the "new" T-Mobile could leapfrog Verizon and AT&T in the race to a superior 5G network, or at least put its network in parity with the other two higher-priced options. T-Mobile claims the new combined network will have 14 times the current capacity and will be eight times as fast in a few years and 15 times as fast in six years. A better network with a better value proposition could position the company to take even more market share in the 5G era.
Reason 3: Still reasonably priced
T-Mobile's stock is up a bit since I bought it earlier this month. Nevertheless, shares still seem like a good value at these levels.
Though Sprint actually had a $1.8 billion net loss during the nine months ended in December 2019, much of that appears to be from losing customers to T-Mobile, given T-Mobile's strong growth. Meanwhile, the combined $6 billion in synergies should negate those losses and then some. Assuming $4 billion in net synergies after assuming $2 billion in losses from Sprint, that would increase T-Mobile's 2019 net income from $3.5 billion in 2019 to around $7.5 billion, or maybe closer to $7 billion after taxes. At the current market cap of $112 billion, that's only 16 times post-synergy earnings. That's still a very reasonable price for a defensive company that generated earnings-per-share growth of 19.6% and free cash flow at 21.6% in 2019, much higher than its revenue growth of 3.9%.
With a defensive, low-cost business model for a necessary service, upside potential from the Sprint acquisition, and a very reasonable valuation, T-Mobile seems like a rare example of a coronavirus-proof stock that hasn't yet been overpriced by the market. Though it's not the only stock I bought this month, this is why T-Mobile is the stock I've been buying the most during the first half of April. Foolish investors should put the Un-Carrier on their buy lists as well.
