In sector terms, communication services is young. It will turn seven years old later this year. When it was formed in 2018, many of its most recognizable components transitioned over from the technology sector. That gave communication services an accurate, tech-heavy feel.
With that in mind, it’s not surprising the sector ranks as the second-largest behind only tech in Invesco QQQ Trust (QQQ ) and the Invesco NASDAQ 100 ETF (QQQM ). Two members of the Magnificent Seven — Alphabet (GOOGL) and Meta Platforms (META) — reside in those ETFs. While the "Mag 7” are struggling this year, that’s not going to be a permanent condition. That says opportunity is abound in the sector. And that opportunity could highlight ETFs like QQQ and QQQM. That’s because those funds eliminate the stock-picking burden for investors.
That’s a clear benefit at a time when multiple communication services names are inviting on valuation, but there’s no telling when those stocks will rebound in earnest.
Communication Services: Contributors to QQQ Cause
Morningstar recently released a list of the top 12 communication services stocks in its coverage universe. And it’s potentially encouraging news for QQQ/QQQM investors. That’s because several of the names on that list are held by the Invesco ETFs. That includes familiar fare such as Alphabet and Meta.
“With solutions ranging from advertising to cloud computing and self-driving cars, Alphabet has built itself into a true technology behemoth, generating tens of billions of dollars in free cash flow annually,” noted analyst Malik Ahmed Khan. “While antitrust concerns around Alphabet’s core search business have made headlines, we retain our confidence in Alphabet’s overall strength and foresee the firm remaining at the forefront of a variety of verticals including search, artificial intelligence, video, and cloud computing.”
As for Facebook parent Meta, Khan highlighted the company’s investments in its Llama AI product as a potential driver of long-term returns. Llama isn’t yet profitable. But it could act as another diversifier for Meta’s social media-heavy business.
Another QQQ/QQQM communication services name that could contribute to upside for the ETFs is cable provider Charter Communications (CHTR). That’s a stock Morningstar says is 34% undervalued relative to its fair value estimate.
“We generally like Charter’s efforts to drive customer penetration by limiting price increases, improving customer service, and expanding its offerings to appeal to a variety of preferences,” sid analyst Michael Hodel. “Competition has increased over the past couple of years as fixed-wireless broadband has gained acceptance and fiber networks continue to expand. Still, we expect Charter will be able to drive modest growth and generate consistent cash flows.”
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