When many investors think of growth-heavy sectors, technology is usually the first group that comes to mind and rightfully. However, due to the reconfiguration of the communication services sector several years ago, that group is growth-centric in its own right.
Communication services was created in 2018 by migrating some big-name tech stocks and well-known media companies out of the tech and consumer discretionary sectors into the previously sleepy telecom sector. Today, communication services has an overt growth flair to it, so much so that it is a staple in the (QQQ ) and the (QQQM ).
Those exchange traded funds allocate nearly 17% of their respective weights to communication services equities — the funds’ second-largest sector exposure behind tech. That’s good news for investors, because several of the QQQ and QQQM holdings from that sector are currently considered high-quality, undervalued names. Media giant (CMCSA) is an example.
“Comcast’s core cable business enjoys significant competitive advantages but will likely see growth slow as competition for incremental customers heats up. NBCUniversal isn’t as well positioned but holds unique assets, including core content franchises and theme parks, that should help ease the transition away from the traditional television business. Overall, we expect Comcast will deliver modest growth with strong cash flow for the foreseeable future,” noted Morningstar analyst Michael Hodel.
Google parent (GOOG), which is the largest communication services name in QQQ and QQQM at a weight of nearly 7.7%, also checks the quality and attractively valued boxes. Add to that, the company has clear artificial intelligence inroads at a time when that trait is in big demand by market participants. The company’s internet search dominance and YouTube unit also remain sources of allure.
“Alphabet dominates the online search market with 80%-plus global share for Google, via which it generates strong revenue growth and cash flow. We expect continuing growth in the firm’s cash flow, as we remain confident that Google will maintain its leadership in search. We foresee YouTube contributing more to the firm’s top and bottom lines, and we view investments of some of that cash in moonshots as attractive. Whether they will generate positive returns remains to be seen, but they do present significant upside,” observed Ali Mogharabi, senior equity analyst at Morningstar.
For more news, information, and analysis, visit the ETF Education Channel.