September 17, 2012
Dan Martino, who manages portfolios of media and telecommunications stocks for T. Rowe Price, sees many opportunities from new products and services.
- Telecommunication services stocks have outperformed many other sectors this year due to their strong fundamentals amid economic uncertainty. In the current low rate environment, investors have flocked to companies that offer high relative dividend yields, such as telecoms. As a result, valuations of certain telecoms have become high relative to their historical averages. We are finding better valuations among cable operators, which have lower dividend payouts but attractive free cash flows. We're focused on the fundamentals of what drives free cash flow rather than just yields.
- The wireless tower business model has proven to be highly profitable. These companies sell longterm leases to wireless operators for the right to put their equipment on the sites. Wireless companies continue to build out their networks, which brings in additional revenues to the tower operators. We believe this business has bright prospects.
- Key trends include wired and wireless broadband expansion, increased smartphone penetration, the growth of Internet advertising, and continued Internet innovation in many industries, including ecommerce, travel, computing, and recruiting. Internet advertising, for example, accounts for 20% of ad revenues. That figure is increasing by several percentage points each year. Smartphone penetration is 60% in the United States but only about 10% in China, a level from which it is likely to grow rapidly.
- We try to identify and own the innovators of tomorrow before others do. We hold on to companies that have solid prospects. That's one of the reasons why we've made a habit of sounding out the opinions of young consumers, who are early adopters of new and disruptive technologies.
There are inherent risks associated with investing in the stock market, including possible loss of principal, and investors must be willing to accept them. Media and telecommunications companies can be adversely affected by, among other things, changes in government regulation, intense competition, dependency on patent protection, and rapid obsolescence of products and services due to product compatibility or changing consumer preferences.
The views are as of September 5, 2012 and may have changed since that time. This information is provided for informational purposes only and is not intended to reflect a current or past recommendation, or investment advice of any kind. Opinions and commentary do not take into account the investment objectives or financial situation of any particular investor or class of investor. Investors will need to consider their own circumstances before making an investment decision.