Americans were forced to adopt a more virtual life in 2020, and this shift in behavior has boosted already growing demand for services ranging from broadband connectivity, wireless telecommunications and video streaming to food delivery and social networks, among others. These practices are expected to stay (and grow), and that’s is great news for the market’s best communication stocks.
The S&P 500 Communication Services sector has easily outperformed the broader index in 2020, boasting a total return (price plus dividends) of 19.5% through Nov. 16, versus 14.1% for the broader market. But there’s potentially more upside to come in 2021.
The sector’s media and entertainment companies are expected to find their footing as advertising revenues recover. Meanwhile, video streaming services are getting a lift from rising consumption at home. As for cable and phone companies, cord-cutting might continue to rise, but consumers still need a fast internet connection. That means fixed and wireless broadband providers are a good play because of their wide moat – setting up a communications network is prohibitively expensive and time-consuming.
“The stay-at-home phenomenon and shift to a remote workforce amid the Covid-19 lockdown could foster some lasting changes in consumer behavior that could provide some tailwinds for broadband consumption,” CFRA analyst Tuna Amobi says in a recent research note. Just be aware of the risks, too: “A global slowdown due to the pandemic could exacerbate some liquidity challenges, while a potential recovery could be significantly delayed amid a surge in Covid-19 cases.”
Read on as we explore five of the best communication services stocks to buy for 2021.