Zacks Investment Research | Jul 07, 2021 09:20PM ET
U.S. telecom stocks started the past week on a positive note, buoyed by optimism surrounding the proposed legislation to safeguard the interests of the broader industry. After an earlier bipartisan legislation for $190 billion funds for R&D, manufacturing and supply chain and an additional $52 billion for boosting production of semiconductor chips & telecommunications equipment over the next five years, the House subcommittee is currently considering nine tech and telecom bills to improve cybersecurity practices that support wireless networks. While protecting the networks and industry supply chain mechanism from external threats, the bills aim to foster innovation and competition for unhindered operations. However, the stocks traded flat mid-week and witnessed a downtrend later to pare the initial gains, triggered by uncertainty within the industry on reports that the government is likely to grant ‘special treatment’ to the automotive sector for chip shortages.
The lawmakers are reportedly giving final touches to a bevy of telecom bills to reduce America’s dependence on China-based hardware and address national security concerns over wireless networks from adverse foreign entities. These include legislation on cybersecurity policy and creation of a council to improve the security and reliability of U.S. communications networks. Two other bills on the list titled "TEAM TELECOM Act" and the "Secure Equipment Act of 2021" are aimed at strengthening the interagency review process and the approval guidelines to tackle national security concerns over FCC approval of communication products from foreign firms. Another bill titled the "Open RAN Outreach Act" is intended to make the NTIA responsible for imparting education and technical assistance to small communications providers for replacing gears from China-based firms like ZTE (HK:0763) and Huawei.
While these bills offer a safety cushion to the industry and appear to have spurred an uptrend, reported federal favoritism to the auto manufacturing sector for production hiatus owing to chip shortage likely sparked a downslide. Industry experts observed that continued chip shortage and supply chain disruptions extended beyond semiconductors to basic structural components and affected production of nearly every element of the communications sector. These included infrastructure products such as routers, switches and base stations to the user terminal side items such as laptops, desktops and mobile phones. To add to the woes, rising inflationary pressure has increased production costs, adversely impacting sector margins. Although the government has employed certain administrative steps to tide over the storm, it is yet to yield broad-based results across the spectrum. Amid this backdrop, industry trade groups opined that it would be unfair if any particular sector is favored at the expense of the other.
Meanwhile, Huawei has reportedly secured one of the largest deals in the automotive industry when it secured a licensing deal for an undisclosed amount for use of its 4G technologies in connected vehicles manufactured by Volkswagen (DE:VOWG_p) Group. The deal assumes significance as it was struck amid persistent U.S. diplomatic pressure and insistence to debar China-based firms from sensitive communication network system owing to alleged security threats.
Regarding company-specific news, collaboration, fiber deployment, network expansion and strategic deals primarily took center stage over the past five trading days.
h3 Recap of the Week’s Most Important Stories/h31. AT&T Inc. expanded its 5G network to Cochrane as part of its C$54 billion investment in Alberta through 2024. With this service launch, residents and enterprises will have access to TELUS’ super-fast 5G network.
Working in partnership with equipment suppliers like Ericsson (BS:ERICAs), Nokia and Samsung (KS:005930), TELUS is expanding its 5G network to an additional 529 new communities across the country. It aims to cover more than 70% of the population by the end of this year.
h3 Price Performance/h3The following table shows the price movement of some of the major telecom stocks over the past week and six months.
In the past five trading days, Motorola (NYSE:MSI) has been the best performer with its stock gaining 3.4%, while Bandwidth (NASDAQ:BAND) declined the most with its stock falling 2.8%.
Over the past six months, Motorola has been the best performer with its stock appreciating 22.6%, while Bandwidth declined the most with its stock falling 15.3%.
Over the past six months, the Zacks Telecommunications Services industry has gained 11.6% while the S&P 500 has rallied 15.5%.
In addition to 5G deployments and product launches, all eyes will remain glued to how the administration implements key policy changes to safeguard the interests of the industry as it battles inflation and chip shortage with the earnings season lurking around the corner.
h3 5 Stocks Set to Double/h3Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
Zacks Investment Research
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