On a day when a top name in their industry posted surprisingly strong quarterly results, numerous telecom stocks followed this leader by rising in price on Tuesday.
Big sector dog AT&T (T 1.31%) saw a nearly 4% bump on the day, while scrappy No. 3 service provider T-Mobile US (TMUS 0.57%) rose in excess of 2%. Smaller industry players got in on the action too, with CommScope Holding (COMM 0.57%) being a particularly outperforming title with its almost 10% climb. All three stocks were well ahead of the S&P 500 index, which increased by 0.7%.
Verizon delivers a solid third quarter
The alpha wolf leading the pack on Tuesday was sturdy Verizon (VZ +0.08%), which unveiled its third-quarter results well before market open. In contrast to more than a few recent quarters, the company beat analyst estimates on both the top and bottom lines, and raised its guidance. This boosted sentiment not only for its own stock but for the wider telecom industry.
That's because, due to its size and prominence, Verizon can be seen as a bellwether for the sector. When it's healthy, investors are bullish about other telecoms. When sick, sentiment declines.
One development that other telecom service providers can take to heart is that the company added 100,000 postpaid net accounts to its customer rolls. Better, this was powered by take-up from the relatively lucrative business accounts; the 151,000 "adds" more than compensated for a loss of 51,000 in the consumer segment.
While AT&T and T-Mobile US labor mightily to distinguish themselves in this ever-competitive market, they and Verizon essentially offer the same services and similar products. So, broadly speaking, what's good for Verizon is beneficial for them. Neither stock bounced as high as Verizon on Tuesday; investors rewarded that company with a more than 9% price rise. But "The Verizon Effect" was strong enough to lift both peers.
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Key Data Points
As for CommScope, its relatively steeper rise was due largely to the fact that it is a telecom equipment supplier. So if we conclude that the service provider end of the industry is on the up, it follows that this company's business stands to gain handsomely. CommScope is a neat, sideways play on the health of the incumbents.
Follow the leader, but cautiously
It nearly goes without saying, but I'll say it anyway -- the performance of one company in a sector is not a guarantee that others will do comparatively well. Yes, Verizon's results should get AT&T and T-Mobile US investors more excited about the prospects for their companies. However, let's please not take this as a given. As ever, we should keep a sharp eye on developments in those businesses individually.
