Choose Rogers over BCE, this portfolio manager says

Oftentimes, there’s not much separating Canada’s telcos but fund manager Teal Linde thinks that over the next 12 months, investors should be looking not at BCE but at Rogers Communications (Rogers Communications Stock Quote, Chart, News TSX:RCI.B), whose share price has fared the worst in 2019.

As defensive stocks go, Canadian stalwarts Rogers and BCE (BCE Stock Quote, Chart, News TSX:BCE) are top of the heap, with investors turning to these steady, high-yield names time and time again when markets start heading south. That phenomenon was clearly in effect over the last few months of 2018 when markets, led by the faltering of big tech names, saw a major correction and money went in search of safe havens. Two of those would be Rogers and BCE, both of which climbed at a nice pace over the last few months of the year.

But 2019 has been a different story. Where BCE lagged behind Rogers and Telus in 2018, it surpassed the other two in 2019. Year-to-date, BCE is now up 16.8 per cent, while Telus is up 10.5 per cent and Rogers is down 8.3 per cent.

But investors should expect a bounce-back from Rogers in 2020, says Linde, as the company has now put a significant shift in strategy fully in place.

“BCE is considered the steadiest and the safest place to go among the three. They’re the most reliable. It’s an example of a stock that has run up quite a bit in the past year because of the flight to safety after the big scare of last year, so BCE’s stock has done well,” said Linde, manager at Linde Equity Fund, to BNN Bloomberg on Monday.

“Rogers has actually come off [since] they offered their unlimited data plan. They took a big hit on that because the adoption rate was greater than they expected and so their overcharge usage which was a source of revenue basically disappeared,” he said.

“So, between the two stocks if you were going to buy going forward for the next 12 months, I’d be a buyer of Rogers,” Linde said.

Rogers’ share price tumbled in October on the company’s latest quarterly report which had management admitting their surprise at how readily customers took to its unlimited wireless data plans, causing the company to guide for lower full-year revenue and resulting in quarterly misses on both revenue and earnings.

“Customer adoption is three times higher than originally expected, reflecting pent-up demand for worry-free data,” wrote Rogers President and CEO Joe Natale in a press release. “While the reduction in overage fees from these plans will impact our results in the next few quarters, the underlying economics of device financing and unlimited plans are favourable and position us for long-term growth.”

Linde says the fact that Rogers has already converted most of its customers to wireless unlimited data plans will make a difference going forward.

“BCE is going to stagger in their unlimited plan, and I think the market obviously likes that because BCE’s stock has held up better and so has Telus, but at least Rogers has done it and completed it so that in a year from now they won’t have any issues about losing business to unlimited. They’ve already gone there,” Linde said.