For the first time in two years, TD Securities has upgraded a select few Telecom sector stocks based in Canada. This is a big move for TD Securities and will make waves in the telecom sector. An upgrade is defined as a “positive change in the rating of a security.” This promotion is awarded by a rating agency – such as TD Securities – when a stock shows a consistent improvement.
Telus Corporation, Rogers Communications Inc., and BCE Inc., are TD’s motivation for the upgrade. Earlier this year TD was afraid that major regulatory decisions, and spectrum auctions would interfere with the sector’s stocks leading to decreased investor portfolios. But, according to a TD analyst, these risks are no longer a threat. In fact, the analyst states that TD Securities no longer see enough of a risk to continue underweighting the telecom sector. Underweighting a sector has serious implications on the attractiveness of a stock.
Telus Corporation is without a doubt the shining star of Canada’s Telecom industry. They recently purchased 122 licenses in the 2.5 GHz band, spending $478.82 million, putting them on the forefront of Canada’s wireless spectrum auction. Together with their pre-existing low band spectrum, Telus will be able to better serve Canada’s rural areas. Rogers Communications, another company that inspired TD’s decision, bought 41 licenses for a grand total of $24.09 million. So far this year, the Canadian government has raised $755.37 million from similar sales intended for smartphone and mobile devices. While Telus may be making some big purchases, smaller, independent Canadian companies and regional operators have also had the chance to purchase some of the 318 regional licenses.
However, despite TD’s vote of confidence, Telecom stocks are not doing well this year. Telecom stocks are down 7% this year. In fact, in March AT&T was let go by the Dow Jones in favour of Apple. TD is doing their best to put a positive spin on this disturbing trend by arguing that this makes stocks more accessible to investors.
All this said, TD Securities is not ready to qualify the Telecom sector as overweight. Classifying a stock as overweight as opposed to underweight, and equal weight means that the stock is a better investment than its under or equal weight competitors.
While it is unclear at the moment how Monday’s decision will effect Canada’s Telecom stocks, it’s safe to say it will have a profound effect. Perhaps, the results will inspire TD Securities to classify Canada’s telecom sector as overweight.