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Two Telecom Stocks To Buy And Hold And One Overpriced Name To Avoid

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Most of the equity market has struggled immensely this year, and telecom is no different. However, taking a long-term mindset reveals some stocks that can be purchased at a deep discount relative to their expected post-recession valuations.

In particular, two telecom stocks look like buy-the-dip opportunities — and a third that investors might want to avoid. In fact, one of the best things about these two telecom names is that both offer sizable dividend yields while investors wait for the bull theses to play out.

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Verizon

Unfortunately, investors have punished Verizon Communications Inc. (NYSE:VZ) severely throughout the year for its weak guidance and declining subscriber adds. It's understandable why the company has been penalized so severely because the lowered guidance suggests continuing problems adding subscribers.

Verizon has primarily been struggling because it raised prices, which is only a temporary headwind that has caused weakness not only in subscriber adds but also in customer retention. Management has been transparent about this year's issues, offering troubling commentary when they reduced their guidance for wireless service revenue growth from a range of 9% to 10% to a new range of 8.5% to 9.5%.

However, despite its lackluster subscriber adds, Verizon reported a 10% increase in wireless service revenue for the third quarter, supporting the idea that the price increases are only a temporary headwind. In the current inflationary environment, wireless customers probably won't find a single carrier that doesn't raise its prices in the near future.

Additionally, Verizon has been named the best mobile carrier in multiple surveys due to the quality and massive scale of its network. Thus, most of the customers who were happy with their Verizon service will probably return at some point. It would take some severe missteps by management for this company to collapse, so it looks like time is all that's needed.

Verizon is currently trading at a P/E multiple of about 8.4 times, which looks low relative to history. However, with its dividend yield of 6.74% and track record of raising its dividend every year for the last 12 years, it could be worth buying and holding the shares in anticipation of the company's future prospects.

AT&T

AT&T Inc. (NYSE:T) has been rewarded off and on throughout the year due to its robust guidance, although it's now up only 3% over the last 30 days. Interestingly, AT&T is trading at a P/E of about 7 times, which is lower than Verizon's and low relative to history.  

The stalwart telecom giant also increased its prices this year, although it has received far less attention and fewer consequences than Verizon has for its increases. Additionally, AT&T deserves a small premium to Verizon due to its stronger guidance.

The company raised its full-year guidance to "at least" $2.50 per share in earnings from "up to" $2.46 per share. AT&T also stated that it's "confident" that it will be able to generate $14 billion in free cash flow for 2022, which would give it plenty of cash to support its dividend and debt repayments even though interest rates are rising.

With its dividend yield of 5.85%, AT&T may also be worth buying and holding until brighter days arrive.

Avoid T-Mobile

While Verizon and AT&T look like solid long-term buys, T-Mobile Us Inc (NASDAQ:TMUS) is clearly overpriced, at least for value investors. The positive reaction to the company's better results relative to its competitors has been dramatically overdone, leading to a massive P/E multiple of about 124 times.

It should be noted that T-Mobile investors have seen an astonishing return of 148% over the last five years, but the company has seen its earnings per share plummet 14% per year over those five years.