Is Now The Time To Buy These 6 Undervalued Communication Services Stocks?

The communication services sector has stayed hot throughout a volatile year of trading in 2021. 

In fact, year-to-date, the Communication Services Select Sector SPDR Fund XLC has a total return of 26.8% compared to a total return of 21.7% for the SPDR S&P 500 ETF Trust SPY.

Assuming the outbreak of the delta variant of COVID-19 subsides and the U.S. economic reopening stays on track, there could be some attractive value opportunities within the communication services sector to buy today.

Here are the six S&P 500 communication services sector stocks with the lowest forward earnings multiples, according to Finviz.

1. Discovery Inc DISCK
Discovery is a media company that owns and operates national television networks, including Discovery Channel and Animal Planet. Earlier this year, Discovery announced a planned merger with WarnerMedia that is expected to be completed in mid-2022.

The stock’s total return in 2021 is just 2% after it shot higher by as much as 150% at one point this year due to a short squeeze. Its forward earnings multiple is just 38.3, the lowest in the entire S&P 500 communication services sector. Analysts have high hopes for a rebound in the next 12 months.

The average price target among the 17 analysts covering Discovery is $36, suggesting a 31% upside from current levels.

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2. AT&T Inc. T
AT&T is a diversified telecommunication and media giant and is the one spinning off WarnerMedia to Discovery.

AT&T has been a major sector laggard so far in 2021, generating a negative total return of 0.1% this year.

The stock has one of the lowest forward earnings multiples in the sector at just 8.4. Looking ahead, analysts are expecting a rebound for AT&T in the next 12 months.

The average price target among the 20 analysts covering the stock is $31.50, suggesting a 15.1% upside from current levels.

3. Lumen Technologies Inc LUMN
Lumen Technologies is the third-largest U.S. telephone company and rebranded from the name CenturyLink in 2020.

Like Discovery, Lumen has pulled back from a 60% year-to-date gain earlier this year and has now produced just a 29.8% total return in 2021. However, the stock’s 9.3 forward earnings multiple suggests there is still plenty of potential valuation upside for investors.

Unfortunately, analysts covering the stock aren’t very optimistic the rally can resume.

The average price target among the 10 analysts covering Lumen is $11, suggesting a 9.3% downside from current levels.

At least Lumen investors get paid a generous 8.2% dividend for their patience.

4. ViacomCBS Inc VIAC
ViacomCBS is a media and entertainment company that has lagged behind its communication services peers and the S&P 500 so far in 2021, generating an 8.8% total return year-to-date. Value investors may like the stock’s forward earnings multiple of 9.9 and price-to-sales ratio of 0.9.

The 24 analysts covering the stock have an average price target of $50, suggesting a 21.2% upside for ViacomCBS over the next 12 months.

5. Verizon Communications Inc. VZ
Verizon Communications is another communication services sector stock that has lagged the sector and overall market in 2021. The company is one of the largest U.S. telecoms.

Even after factoring in its 4.5% dividend, Verizon shares have generated a total return of negative 3.6% this year, significantly underperforming the communication services sector as a whole. The stock’s forward earnings multiple of just 10.2 might make the stock an attractive buy for value investors.

The 21 analysts covering Verizon have an average price target of $60, suggesting a 9.1% upside over the next 12 months.

6. Fox Corp FOXA
Fox is a media and entertainment company that owns the FOX Broadcast Network, 28 TV stations and cable assets such as Fox News and Fox Business. Fox shares have traded mostly in-line with the sector as a whole, generating a 28% total return year-to-date. Fox’s forward earnings multiple remains one of the lowest in the sector at just 10.7. It also has the highest average earnings growth (15.9%) over the past five years of any of the six stocks mentioned.

The 22 analysts covering Fox are expecting the stock to continue to grind higher in the next 12 months. The average price target is $42.50, suggesting a 13.6% upside from current levels.

Photo by John Schnobrich on Unsplash