It’s been a year of twists and turns, but if there’s one sector that’s taken a beating, it’s communications.
The Communication Services Select Sector SPDR Fund (NYSE: XLC) is the worst-performing of the 11 major S&P 500 sector ETFs I track. It’s sporting a loss of over 19% year to date and it’s down almost 28% from its 2021 highs.
When I see carnage like that, I like to look for investment angles. Because sometimes stuff is too cheap to ignore.
You might not associate the communications sector with volatility. Historically, the sector was dominated by well-established telecom operators like AT&T (NYSE: T) and Verizon (NYSE: VZ).
Well, today each of those companies makes up only about 4% of the sector.
Not Your Grandfather’s XLC: Social Media Stocks Dominate
Social media stocks now dominate the sector. Meta Platforms Inc. (Nasdaq: FB) (formerly Facebook) alone makes up a full 24% of it. In fact, Facebook’s dumpster fire of a year has been a drag on the entire sector!
Meta’s share price topped out at over $380 per share in September 2021. Since then, it’s been a long slog (with a precipitous drop) lower.
FB shares have lost more than half their value since September and are now trading near 52-week lows.
But before you run out and buy the shares, consider that the stock rates a sub-par 43 out of 100 on my Stock Power Ratings system.
Meta Platforms Inc.’s Stock Power Rating on April 25, 2022.
There are strong points in its favor:
- 100 on my quality factor.
- 93 on my growth factor.
- A respectable 61 on value.
But its momentum rates just an 8. And its volatility score isn’t much better at 26.
While FB is still a profitable business, Wall Street doesn’t like that it’s losing market share to TikTok and other more recent arrivals. There just aren’t a lot of FB stock buyers right now.
And I’m right there with them.
I don’t like trying to catch a falling knife. I like to buy high and sell higher.
You’re not going to see me nibbling on Meta any time soon.
Is TWTR a Buy as Elon Musk Sows Takeover Confusion?
And then there’s Twitter Inc. (NYSE: TWTR). My colleagues Charles Sizemore and Matt Clark recently riffed on Elon Musk and his plans to buy the company.
Well, frankly, Musk can have it!
Twitter Inc.’s Stock Power Rating on April 25, 2022.
Twitter stock rates a “High-Risk” 11 on my Stock Power Ratings. That’s 11 … out of 100.
Twitter looks OK on growth with a 69 rating. But after that, the factor ratings really trail off. It rates a 56 on quality … and below 20 on everything else.
TWTR has fared better recently as Tesla CEO Elon Musk has pursued ownership, but it's still down 22% over the last year! [Editor's note: Musk reached a deal to buy Twitter for $44 billion late Monday evening.]
It’s entirely possible that either of these social media stocks could hit bottom today and start a new uptrend. But that’s not a game I like to play.
My Stock Power Ratings system is not designed to call bottoms. It’s designed to identify stocks that are both fundamentally and technically sound, giving us a strong starting point for further analysis.
I’ll pass on these two social media players for the time being.
But there is one stock in the communications sector that I am bullish on, and I recently recommended it to my Green Zone Fortunes subscribers.
It rates among the market elite on the quality and growth factors and sports strong ratings in momentum and volatility as well.
In other words: We’re getting a high-quality, low-volatility growth stock that’s already trending higher.
To find out how you can join my Green Zone Fortunes premium stock research service click here today.
To good profits,
Adam O’Dell
Chief Investment Strategist