3 Communication Mutual Funds to Buy on Stellar Q3 Earnings – November 7, 2019

Mutual fund investors willing to take long-term risks could consider the technology sector. To be specific, mutual funds that invest in telecom, which posted better-than-expected earnings last quarter, could be lucrative bets. In addition, the U.S.-China trade dispute is widely expected to conclude by the end of this year, which is likely to boost the space.

Tech Remains the Best Performer of This Year

The U.S. technology sector has outperformed the other S&P 500 sectors by a significant margin so far in 2019, despite Wall Street’s fears of a global economic slowdown and the lingering U.S.-China trade dispute. There has been some progress on the trade war front recently. Technology has performed the best so far this year, with the Technology Select Sector SPDR Fund (XLK) gaining 37.1% on a year-to-date basis.

In fact, in the third-quarter 2019, most of the technology companies have reported impressive earnings. Among these, companies engaged in activities in the telecommunications and wireless products and services industry have reported remarkable earnings.

Impressive Telecom and Wireless Q3 Earnings

Diving deeper into telecom earnings, one can easily note that Q3 2019 earnings of AT&T Inc., Verizon Communications Inc. and T-Mobile US, Inc. surpassed the Zacks Consensus Estimate.

Verizon Communications reported strong Q3 2019 earnings, mostly led by the wireless business. The company’s adjusted earnings were $1.25 per share, which beat the Zacks Consensus Estimate by a penny. Verizon’s consolidated GAAP operating revenues also improved 0.9% on a year-over-year basis to hit $32,894 million. The company registered gains in its wireless services and is well poised to benefit from the rise in 5G deployment across the United States.

T-Mobile USreported Q3 adjusted earnings per share of $1.16, which beat the Zacks Consensus Estimate by 19 cents. The company’s quarterly total revenues also rose 2% year over year to $11,061 million, mostly driven by growth in service revenues. The mobile communications services provider continued to gain its share in the wireless market during the third quarter owing to strong customer loyalty.

AT&T reported decent Q3 adjusted earnings (excluding non-recurring items) of 94 cents per share, surpassing the Zacks Consensus Estimate by a penny. In addition, management offered healthy guidance for 2020 and expects adjusted earnings in the range of $3.60 to $3.70 per share on revenue growth of 1-2%. AT&T expects consolidated revenue growth of 1-2% per year for the three-year period 2020-2022.

Our Choices

We have, therefore, selected three mutual funds that invest in the telecommunications industry. All these funds carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have encouraging year-to-date returns. Additionally, the minimum initial investment is within $5,000.

We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance but also on the likely future success of the fund.

The question here is why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

Fidelity Select Wireless Portfolio (FWRLX Free Report) aims for capital growth. The fund invests the majority of its assets in companies that are engaged in activities involving wireless communications services or products. The non-diversified fund mostly invests in common stocks of companies. AT&T, Verizon Communications and T-Mobile US are among the fund’s top 10 holdings.

This Zacks sector – Tech product has a history of positive total returns for more than 10 years. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FWRLX carries a Zacks Mutual Fund Rank #1 and has an annual expense ratio of 0.83%, which is below the category average of 1.24%. It has returned 30.2% on a year-to-date basis. FWRLX has no minimum initial investment.

Fidelity Advisor Telecommunications Fund Class A (FTUAX Free Report) seeks capital growth. The fund invests the majority of its assets in securities of companies engaged in various activities in the telecommunications industry. The non-diversified fund invests in U.S. and non-U.S. issuers alike. AT&T, Verizon Communications and T-Mobile US are the fund’s top three holdings.

This Zacks sector – Tech product has a history of positive total returns for more than 10 years. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FTUAX carries a Zacks Mutual Fund Rank #2 and has an annual expense ratio of 1.18%, which is below the category average of 1.24%. It has returned 16.9% on a year-to-date basis. FTUAX has no minimum initial investment.

Fidelity Select Telecommunications Portfolio (FSTCX Free Report) seeks capital appreciation. The fund invests the majority of its assets in securities of companies engaged in the development, production and/or distribution of telecommunications services. The fund mostly invests in common stocks. AT&T, Verizon Communications and T-Mobile US are the fund’s top three holdings.

This Zacks sector – Tech product has a history of positive total returns for more than 10 years. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FSTCX carries a Zacks Mutual Fund Rank #2 and has an annual expense ratio of 0.84%, which is below the category average of 1.24%. It has returned 17.2% on a year-to-date basis. FSTCX has no minimum initial investment.

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