5 telecommunications stocks to watch in 2014

Technology is booming. Or more specifically internet use is booming. Whilst IT service companies have failed to keep up with demand and start-ups are bringing disruptive change, telecommunications companies keep moving ahead thanks to higher earnings growth.

From fixed infrastructure owners right down to service providers, everyone is making a handsome profit from the long-term tailwinds in the industry. Complex mobile phone applications, increased data limits and faster internet is the new normal.

While new applications like Cloud computing and Big Data have put other technologies and services on the back burner, they’ve only increased our reliance on the internet and subsequently telecommunications companies.

The biggest and most dominant player in the industry is Telstra Corporation Ltd (ASX: TLS) and it’s only growing. High-speed wireless internet and superior network coverage could be the reasons the NBN Co’s super-fast fibre optic network fails to recoup taxpayer money. I believe Telstra will continue to snatch customers from other telcos, especially in mobile and fixed internet, thanks to its brand recognition, superior networks and product offering.

TPG Telecom Ltd (ASX: TPM) is another company going from strength to strength and could be a serious contender for Telstra’s commanding lead in years to come. It is also planning to bypass the NBN with a number of key offerings. As a result shareholders have enjoyed tremendous growth in previous years. With the recent acquisition of AAPT for $450 million, TPG looks even more likely to continue growing earnings in coming years.

One of TPG’s main rivals, M2 Telecommunications Group Limited (ASX: MTU) has also been busy acquiring smaller providers in recent years and has seen its share price rocket upwards. However in 2013, the company changed its business model from largely acquisitive to organic growth. Investors have since ignored its long-term potential. However, it is my personal favourite in the industry. It owns brands such as Primus, DoDo and Commander.

Vocus Communications Limited (ASX: VOC) is a small-cap stock which builds and runs networks for large enterprises and government. Its networks extend beyond Australia into New Zealand, Asia and the United States. Investors have realised the potential of this top stock and its share price has risen 90% in the past 12 months alone. I’m expecting big things from this company in the years ahead.

Last, but certainly not least, Amcom Telecommunications Limited (ASX: AMM) provides a suite of data network services to customers and also extends upon the product offerings of its rivals. From data centres to Cloud solutions and IT Services, Amcom will benefit from the increasing demands of businesses who want simplicity, security and data privacy.

Foolish takeaway

Finding companies who have industry tailwinds is the easy part. What’s important is to conduct rigorous analysis of the companies’ strengths and weaknesses before making any investment decision. The increasing use of Cloud computing and analytics is highly profitable, but also fiercely competitive. Investors should try to find companies which offer ‘sticky’ products, or have a competitive advantage, as they are more likely to keep a tight grip on their market share, thereby continuing to drive earnings higher.

Should you buy, sell or hold your Telstra shares?

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Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies. 

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