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Led by Verizon And AT&T, Telecom Tops S&P Sectors; Dividends Rule

With Verizon Communications ( VZ ) stock up nearly 17% and AT&T ( T ) soaring over 14%, the S&P telecommunications services sector is poised to lead the S&P 500’s 10 sectors in Q1 performance. As of afternoon trading in the stock market today , the S&P telecom services sector ranked tops, with utilities the only other sector posting a double-digit gain, for the first three months of 2016. “Absent some blow-away window dressing late in the session, that’s the way” the quarter will end up, S&P analyst Howard Silverblatt told IBD. The S&P telecom services sector is up over 15% in Q1. High dividend-paying Verizon and AT&T are among the best-performing stocks in the S&P 100 this year. Smaller phone companies also have outperformed, with CenturyLink ( CTL ) jumping 26%, Frontier Communications ( FTR ) up 20% and Windstream Holdings ( WIN ) gaining nearly 17%. Among wireless-only service providers, shares of   T-Mobile US ( TMUS ) are down about 2% and  Sprint ( S ) stock is near down 4.5%. Neither T-Mobile nor debt-laden Sprint pay dividends. Though they’re not in the S&P telecom services group, cable TV companies also posted solid returns in Q1. Shares of  Charter Communications ( CHTR )  and Time Warner Cable ( TWC ), which plan to merge, are both up 10% in Q1. Analysts expect the Charter-TWC deal to close in May. Comcast ( CMCSA ) stock is up 8% this year, and shares of  Cablevision Systems ( CVC ) have edged up over 3%. The Q1 laggards have been the financial, health care and consumer discretionary sectors. Craig Moffett, an analyst at MoffettNathanson, says Verizon and AT&T have benefited from global interest rates falling and “risk appetites withering.” “Whether the telco rally has legs will depend on fundamentals and growth and perhaps a change in industry structure,” Moffett said in a research report. Federal regulators, though, have been opposed to wireless consolidation, such as a Sprint and T-Mobile merger. AT&T has also been boosted by its purchase of satellite TV broadcaster DirecTV Group, analysts say. At Barclays, analyst Amir Rozwadowski in a report said that while the “flight to safety trade” isn’t showing signs of dispersing, investors may look at fundamentals more, going forward. IBD’s Telecom Services-Integrated group ranks No. 39 out of 197 industry sectors. AT&T is an IBD Leaderboard stock. Image provided by Shutterstock .

Microsoft Stock Gets Boost From AI, Machine Learning Initiatives

Microsoft ( MSFT ) executives trumpeted machine learning, artificial intelligence and software bots at the start of the company’s Build developers conference on Wednesday in San Francisco. And investors liked what they heard. Microsoft shares were up 0.4% to above 55 in afternoon trading on the stock market today , approaching their all-time high of 56.85, reached on Dec. 29. “Microsoft’s Build conference was more exciting than we expected, with major announcements around machine learning, bots and AI,” Pacific Crest Securities analyst Brendan Barnicle said in a report Wednesday. “These products show Microsoft’s development focus is moving beyond the cloud to Conversations as a Platform.” Barnicle reiterated his overweight rating on Microsoft stock with a price target of 65. At Build, Microsoft CEO Satya Nadella showcased improvements to the Cortana personal assistant software and announced previews of new cloud computing services and toolkits for machine learning and to create intelligent bots. “As an industry, we are on the cusp of a new frontier that pairs the power of natural human language with advanced machine intelligence,” Nadella said in a statement . “At Microsoft, we call this Conversations as a Platform, and it builds on and extends the power of the Microsoft Azure, Office 365 and Windows platforms to empower developers everywhere.” With Conversations as a Platform, speech and text queries in natural language are the new user interface for computing devices, Nadella said. And intelligent software bots are the new apps, he said. RBC Capital Markets analyst Ross MacMillan said Microsoft’s announcements Wednesday were evolutionary. However, he reiterated his outperform rating on Microsoft stock and price target of 63. “Microsoft used its annual developer conference to highlight the evolution of Windows 10, new initiatives and the company’s long-term goal to develop to a new interaction platform based on natural language and machine learning,” MacMillan said in a report Wednesday. “We view (the) announcements as incremental.” Microsoft’s efforts to turn Cortana into a platform based on conversational natural language aligns with what Amazon.com ( AMZN ) is doing with Echo and what  Apple ( AAPL ) is doing with Siri, he said. In a report Wednesday, Raymond James analyst Michael Turits maintained his strong buy rating on Microsoft stock.

Zillow Has Nothing To Fear From Facebook; Acquisitions Planned?

Zillow Group ( ZG ) does not face a serious threat from Facebook ( FB ), and the online real estate market leader might be getting ready to make acquisitions in 2016, said Cowen and Co. “Competitively, management is not seeing much impact from Facebook and there was no mention of pressure from ( News Corp. ( NWS )-owned rival) Realtor.com,” wrote Cowen analyst Thomas Champion in a research report Thursday, following a meeting this week with the head of Zillow’s investor relations unit, RJ Jones. “At this point, management seems focused on capitalizing on the audience growth established with the Trulia merger.” Champion said merger and acquisition opportunities “remain on the table” as Zillow “is actively on the lookout for unique assets.” The digital real estate company is likely interested in “regional tuck-ins,” including New York-based apartment search website Naked Apartments or “niche technology products” such as DotLoop, a collaboration platform for real estate professionals that Zillow bought last year . Zillow’s return on ad spend per agent is rising, said Champion, with the online real estate company posting $3.2 billion in commissions generated from $470 million in agent revenue for 2015. “This is up from $2.3 billion in commissions and $350 million in spend as of 2014,” he said. With the reclassification of some of its display ad revenue, Zillow’s full-year display revenue guidance of $54 million to $56 million, down from $96 million in 2015, “is not as severe as previously thought,” said Champion. Zillow is counting on continuing growth in areas including rentals, mortgages, DotLoop, and StreetEasy — the residential real-estate website for shoppers in the New York region — to drive growth, he said. Zillow stock jumped last week after the No. 1 online real estate listings company got a price-target boost and rating upgrade from RBC Capital Markets, which cited strong online traffic trends. RBC upgraded Zillow to outperform from sector perform, and hiked its price target on Zillow stock to 34 from 21. Zillow stock was up 4% in afternoon trading in the stock market today , near 24. Zillow now holds an IBD Composite Rating of just 47 out of a possible 99. Seattle-based Zillow completed its $2.5 billion purchase of top competitor Trulia in February 2015. The union put the two most-visited real estate websites under the same ownership and formed the Zillow Group in a move designed to expand reach, forge efficiencies and cut costs. Both the Zillow and Trulia websites remain in operation, targeting homebuyers and renters, as well as real estate agents who pay to advertise alongside the home listings on the sites. Move Inc. is the parent of rival online real estate site Realtor.com, which is an official website of the National Association of Realtors. Media empire News Corp. bought Move in 2014.