BCE is a good place to put your money now, this fund manager says

Canadian telecom stocks are having trouble getting back to where they were before COVID-19 struck, but there are good long-term prospects in a name like BCE (BCE Stock Quote, Chart, News TSX:BCE), according to portfolio manager Michael Sprung.

“I think this is going to be an interesting environment for the telecom companies,” said Sprung, president of Sprung Investment Management, speaking on BNN Bloomberg on Monday. “They are certainly going to benefit from the stay-at-home phenomenon and internet services, I think, are going to do very well.”

“Where there might be some pressure over the next while is I think people will be very loath to give up and reduce their cell phones but that they may be forced to take less expensive packages,” he said.

One of the more defensive sectors out there, telecoms are delivering on dividends, with names like BCE now sporting close to six per cent yields, but share prices have not gone up in the way that one might think during an extremely volatile period such as the one we’re now enduring.

The VIX volatility index, for example, is still at levels not seen in almost a decade, yet growth stocks are doing well, including those in the technology sector — where the S&P 500 Index is still struggling to get to even for the year, the tech-heavy Nasdaq Index is now up 11 per cent for the year.

Meanwhile, BCE remains down six per cent for 2020, while its competitors Telus and Rogers are down 11 per cent and 15 per cent, respectively.

Canada’s Big Three telecoms all made a move last year to bring customers aboard wireless plans which featured no overage charges for data usage, a gambit aimed at securing customers ahead of the 5G network revolution, now being implemented, which will see much more data usage at higher speeds.

The move came with a hit to their top lines, however, with the loss of lucrative overage fees. Rogers, especially, saw its revenue reduced due to a quick transition to unlimited plans.

“It was fortunate, actually, for a lot of consumers that the telecom companies got into a competitive race and started to offer unlimited packages at fairly reduced rates, just as that just before all of this began,” Sprung said.

Sprung says the long-term outlook for BCE is good, especially since they’ve invested well into building out their 5G capabilities.

“Overall, BCE is one of the stalwart Canadian companies and I think it’s probably a fairly good place to be,” Sprung said. “They are going to have to be putting in a lot of capital expenditure going forward in terms of when 5G starts to be implemented and built out more, and that's going to be quite costly but I do believe that it's going to be a benefit in the long run.”

“So if you want to be in a company that's been run for the long term I think BCE is certainly one of the ones that I would recommend within that industry group,” Sprung said.