Month: May 2021

The pandemic has been both good and bad for telecommunications stocks. Indeed, this pandemic has been a difficult one for investors to assess for telecom stocks.

On one hand, customers have relied heavily on high-speed internet connectivity to comply with work-from-home norms. On the other hand, telecom companies have not generated revenues from roaming charges as they had prior to the pandemic.

Accordingly, recent results have been murky for these stocks. That said, I think Telus (TSX:T)(NYSE:TU) is well positioned for growth in this environment. Here’s why.

Growth outlook remains strong Telus’s growth outlook really hasn’t changed much as a result of the pandemic.

During the past quarter, Telus saw a 9% revenue-growth rate year over year. That’s not bad at all. Telus grew revenues to US$4.02 billion, up from US$3.94 billion from the same quarter last year.

Additionally, Telus has benefited from recent spinoffs of late. By selling its stake in Telus International, the company was able to pull in $1.3 billion in cash.

Here’s why that’s a big deal.

Telus is spending heavily on updating its infrastructure. The company’s spending plans for fibre optics is US$750 billion alone. The total bill is likely to come to US$3.5 billion for 2021. Raising capital in equity markets reduces the company’s debt burden and makes its infrastructure rollout easier on its balance sheet.

Other subsidiaries also saw impressive revenue growth; for example, Telus Health had 10% revenue growth this past quarter. If other spinoffs materialize as expected, Telus could stand to benefit further from this trend.

5G catalyst remains key for telecom investments The other key area of investment for Telus will be on upgrading its 5G network.

Indeed, from a wealth-creation perspective, 5G is one of the most profitable opportunities in the telecom sector. Telus seems to identify this opportunity well and is accelerating its expansion. With funds raised from equity and subsidiary spin-off, Telus also predicts installations will, for the most part, be done by 2022. Additionally, operational costs will begin to drop (and margins rise) in 2023.

For long-term investors, Telus provides an excellent risk/reward thesis at these levels. For those who believe in the cash flow-generating power of the 5G revolution, Telus’s heavy investment today could pay massive dividends over the long term — both figuratively and literally.

I think Telus stock provides investors with the right mix of defensiveness, growth, and income today. The company’s 4.8% dividend yield is one of the best bond-like returns investors can get in the market today. Combined with the 5G growth catalyst, this stock looks like a no-brainer for long-term investors.

Bitcoin has been taking a beating lately. After Elon Musk announced that Tesla would stop accepting BTC, the world’s largest crypto went into a free fall, declining 32% in price. Much of that decline occurred relatively slowly over the course of a month. But today saw a particularly sharp downturn after the Chinese government announced that it was banning crypto trading by banks and institutions. The most extreme action China has taken against crypto yet, it sent Bitcoin into a tailspin. At one point earlier today, Bitcoin shed 6% of its value in just five minutes. The question investors need to ask themselves is this: Is this a sign of things to come or just a blip on the screen?

China bans crypto trading by banks The first thing to know about China’s crypto ban is that it isn’t the first such action China has taken. China has threatened to ban crypto many times before and nothing much has come of it. The current action doesn’t look that dramatic. What China has outlawed is crypto transactions by banks and financial institutions. It still allows

• Mining operations;
• Buying and selling on foreign exchanges; and
• Crypto-related investment products.

This move probably won’t be devastating to the crypto market on its own. It may, however, be ominous when viewed in tandem with other large entities’ actions on crypto. So far this year, we’ve seen China, Turkey, and Tesla all move to restrict crypto transactions after previously allowing them. The big-picture trend certainly doesn’t favourable to Bitcoin. Of course, there is also a trend toward increasing crypto adoption by U.S. institutional investors. But you never know when regulations will throw a wrench in that one as well. Recently, Bitcoin was used as the currency of choice in an extortion attack against a major U.S. oil pipeline. That’s exactly the type of thing that tends to get regulators’ attention, and the SEC is getting more and more vocal about the matter by the day.

A word to the wise If you’re a crypto holder looking at all that’s going on, you might feel a little bit nervous. Here we’ve got countries and major corporations banning Bitcoin, and it’s by far the most “mainstream” crypto out there. How can this possibly be good news for the broader crypto universe, most of which isn’t nearly as socially acceptable as Bitcoin is?

We’ll have to wait and see how it all plays out. Bitcoin has taken dips bigger than the recent one and still survived. But a word to the wise: If you currently own an all-crypto portfolio, you might want to diversify a bit more.

By buying ETFs like iShares S&P/TSX 60 Index Fund (TSX:XIU), you can take much of the volatility out of your portfolio while retaining the upside. Most modern investing experts recommend diversification in stocks and bonds, with “ultra-risky” plays like Bitcoin making up just a tiny portion of your portfolio. There’s room in a portfolio for some high-risk stuff. But ETFs like XIU should be your meat and potatoes. With a fund like XIU, you get built-in diversification (XIU has 60 stocks in its portfolio), high liquidity, and much less volatility than you get with crypto investments. In exchange, you pay only a small fee (1.6%). If you throw a bond fund like the BMO Mid-Term U.S. Corporate Bond ETF into the mix, you reduce the risk even more. It all adds up to a diversified portfolio that dramatically cuts back on volatility. And yes, you can still keep a bit of Bitcoin in there if you wish.

The post 1st Tesla and Now China: Is Bitcoin Finished? appeared first on The Motley Fool Canada.