Notes
Divide the ten major sectors into thirds by capitalization: large, mid, and small. What has been the worst-performing sector by market cap?Big financials? Nope.
Obviously, small-cap energy. Nope.
Of course! The junior miners! Nope.
The loser is... small-cap telecom.
Telecommunication Services (SC 600): -57%
Energy (MC 400): -56.7%
Financials (SP 500): -56.7%
Telecommunication Services (MC 400): -50.4%
Materials (SC 600): -50.3%
These are S&P's indicies: MC 400 is the Mid-cap 400, and SC 600 is the Small-cap 600. Data through Nov. 30.
OK, the difference between 57 and 56.7 is pretty small. But, telecom is also the only sector to lose over 50% in two different market-cap divisions. Something is up (or, rather, down).
The explanation lies in demand-destruction for phone calls. During a recession, people communicate by running string between their Dixie cups.
Obviously, I have no idea what I'm talking about, which is why I'm qualified to have a blog on the stock market. I can't find or imagine a reason for a seemingly recession-resistant industry to have underperformed financials and commodities this year.
How can I make money off this? By having your assumptions come true, of course!
10DEC08
Insider buying is often reported to be most significant for small companies, as is a low price/sales ratio. Let's assume it's true! Here's the list; the last two numbers are market cap. and the P/S ratio.....Alternative Carriers
* ARBX. Arbinet-thexchange, Inc. $38m. 0.1
* PAET. PAETEC Holding Corp. $192m. 0.1
* GLBC. Global Crossing Ltd. $421m. 0.2
Integrated Telecommunication Services
* HTCO. Hickory Tech Corporation. $71m. 0.5
* DECC. D&E Communications, Inc. $102m. 0.7
* FTR. Frontier Communications Corp. $2.7B. 1.2
Wireless Telecommunication Services
* IPCS. iPCS, Inc. $105m. 0.2
* NIHD. NII Holdings, Inc. $2.9B. 0.7
* TDS. Telephone & Data Systems, Inc. $3.5B 0.7
My legal counsel advises me to disclaim that this is anything except what I said it is. It's a good thing we have lawyers for that. This is a list of stocks from a screener I ran. It's not investment advice.
And of course there are funds. Researching pure index funds is boring, so I'll leave that to boring people. Much more exciting is the search for an angle, a scoop--an advantage.
Closed-end Funds. I couldn't find any pure plays here. These trade at a nice discount to NAV and have fees under 2%.
* Reaves Utility Income Trust (UTG), holds more telecom than average (around 30%).
* Emerging Markets Telecommunications Fund (ETF)
* Gabelli Global Multimedia Trust (GGT), includes some telecom and cable.
ETFs
* PowerShares Dynamic Telecommunications Services Portfolio (PTE): "Stocks are selected principally on the basis of their capital appreciation potential as identified by the AMEX pursuant to a proprietary Intellidex methodology." The main difference between this fund and the straight telecom indices is that this one holds more small caps. The standard, size-weighted indices are heavily weighted toward AT&T and Verizon.
Mutual Funds. Morningstar gives two telecom funds 5-stars. I'll let you find out which ones (it's free from morningstar.com), and whether their star-ratings are worth the pixels they're printed on.
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