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7 Best Communication Services Stocks for the Rest of 2021

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27.07.2021

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The future of the communication services sector is being shaped today by several secular, or long-lasting, trends: high-speed wireless connectivity, online video streaming, connected devices and services that enable the digital lifestyle including social media and gaming.

The sector comprises telecom carriers that operate wired and wireless internet connections, media and entertainment companies that create content, and interactive digital firms that provide the platforms enabling a virtual life.

T-Mobile (TMUS), Comcast (CMCSA), Netflix (NFLX), Facebook (FB), Electronic Arts (EA) and Google parent Alphabet (GOOGL) are some of the more high-profile communication services stocks.

Year-to-date, the S&P 500 Communication Services sector is up 24.5% compared to 17.5% for the S&P 500 Index. The forward price-to-earnings (P/E) ratio for the sector is 22.6, a tad higher than the broader index's 21.6, which is not surprising given that it includes many fast-growing tech stocks. Within the sector, interactive media and services stocks have been the top performers, up 46.7% year-to-date.

Gauging the stocks in the sector will differ, given the increased diversity of companies following the 2018 shuffling in which many names formerly classified under information technology or consumer discretionary were moved to communication services. For example, telecom companies tend to pay higher dividends but also have higher capital expenditures, while many tech companies focus on growth rather than shelling out dividends.

Here are seven communication services stocks for the remainder of 2021. They each have consensus Buy ratings from analysts, as measured by S&P Global Market Intelligence, and will likely benefit from the long-term digital trends.

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Gaia (GAIA, $12.02) is an online video streaming service specializing in what it calls "consciousness-expanding" content such as yoga and meditation classes, as well as shows on alternative healing and other non-mainstream topics. It also develops original content, such as a series called Thrive: Self-healing with Ayurveda and a documentary titled The Healing Field: Exploring Energy & Consciousness.

B. Riley analyst Eric Wold has a Buy rating on Gaia and a price target of $17 ahead of the company's early August earnings report. GAIA reported first-quarter results in May that beat Wall Street's consensus expectations. Gaia has generated positive adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) for six consecutive quarters and positive free cash flow for the last three quarters. The strong balance sheet means management can focus beyond short-term results and reinvest in the business for the long term.

Gaia ended the first quarter with more than 750,000 paying subscribers, up 24% from the prior year. Wold says the company is focused on three growth initiatives: a premium live access tier for $299 a year; expansion into German and French offerings to add to its Spanish offerings; and word-of-mouth growth through increased engagement with existing members.

The analyst notes that the company's board approved a share buyback program, meaning that it is confident about its cash flow generation. Wold says Gaia is undervalued compared to other communication services stocks. According to its annual report, Gaia says 80% of its content is only available on its platform, differentiating it in the crowded online video marketplace.

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If most people had to guess which online video device dominates the market, they probably would say it is either Apple's (AAPL) Apple TV, Google's Chromecast or Amazon.com's (AMZN) Fire TV. The perhaps surprising answer, though, is Roku (ROKU, $473.65),........

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