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Best stocks to buy to gain exposure to the S&P 500's new communication services sector

Sep 25, 2018

  • Yesterday marked the first day of trading since the Global Industry Classification Standard (GICS) was changed for the first time since 1999 and the new communication services sector was introduced in the S&P 500. 
  • The new communication services sector is broadly a representation of social media and broadband companies. General investor demand for companies within this sector will be high as investors seek exposure to this attractive sector with long-term potential. 
  • The communication services sector replaced the telecommunications sector while also pulling names out of the S&P 500’s technology sector and consumer discretionary sector.  
  • The communication services sector represents roughly 11% of the S&P 500. Alphabet is the largest constituent in the sector with about 22.9% of the weight between its two tickers and Facebook is the second largest constituent with about 17.7% of the sector’s weight.  
  • News Corp. (NWSA), Discovery, Inc. (DISC.A), Twenty-First Century Fox, Inc. (FOX) are all media companies and are among the most expensive companies in the new sector, with high NTM P/E multiples despite negative return on equities (ROEs). TripAdvisor, Inc. (TRIP) is also very expensive relative to its ROE.  
  • Telecommunication companies are the most attractively priced companies in the new sector with Verizon (VZ), CBS Corporation (CBS), Dish Network Corporation (DISH), and Comcast Corporation (CMCS.A) all generating high ROEs while remaining attractively priced. Omnicom Group (OMC) is also considered cheap with a strong ROE and attractive NTM P/E. 
  • Of the five companies priced attractively, Verizon (VZ) is the only ‘Top Buy’ in our Global Top Picks

Source: Capital IQ

Source: Capital IQ