Why You Should Consider Vodafone Group plc, BT Group plc & SKY PLC

Why you should consider Vodafone Group plc (LON: VOD), BT Group plc (LON: BT.A) and SKY PLC (LON: SKY) for your portfolio.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The beginning of 2016 has been one of the most volatile periods in history for stock markets around the world, but there’s one group of equities that has managed to avoid most of the turbulence. 

Telecoms and media stocks such as Vodafone (LSE: VOD), BT (LSE: BT.A) and SKY (LSE: SKY) are highly defensive and become a safe haven for investors in times of turbulence. 

Indeed, over the past 12 months, all three of these companies have outperformed the wider FTSE 100 by more than 10% excluding dividends. In fact, BT has outperformed the UK’s leading index by almost 20%, and it’s reasonable to believe that this performance will continue over the next 12 months.

Economic moats

Warren Buffett, who many claim to be the world’s greatest investor, often talks about business moats or competitive advantages. Sky, BT and Vodafone all exhibit the traits of such economic business moats. Specifically, all three of these companies have a leading position in a large market, and the industries they operate in have high barriers to entry. For example, for a new competitor to spring up and take on Vodafone, they would have to spend tens of billions of dollars on new network infrastructure, marketing and a store network. There are few, if any, companies that would be able to do this without taking on a crippling amount of debt.

Similarly, it’s virtually impossible for a new competitor to come into the UK telecoms market and build a network to rival that of BT. It would take years just to get planning approval for the infrastructure required. Then there’s Sky, which has shown its resilience and strong relationship with customers over the past few years as competitors such as Netflix, Amazon, BT and other content streaming providers have all started to nibble away at the company’s market share. However, despite this competition, Sky’s pre-tax profits are up around 50% since 2011 and City analysts are forecasting a further 11% growth in EPS this year.

Not cheap 

Unfortunately, due to their one-of-a-kind nature, Sky, BT and Vodafone’s shares aren’t cheap. Sky’s shares currently trade at a forward PE of 16.5 and yield 3.1%. BT’s shares trade at a forward PE of 14.7 and yield 2.5%. And Vodafone shares trade at a forward PE of 38.3 and support a yield of 5.1%. These premium valuations may put some investors off, but sometimes you have to pay for quality and these three companies are all quality investments that are worth paying for— their outperformance over the past three and five-year periods is a testament to this. It’s also worth paying extra for the economic moats these businesses have.

Overall, you should consider Sky, BT and Vodafone’s shares for their defensive nature and market leading positions. Further, it’s unlikely these businesses will go under anytime soon.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has recommended Sky. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing For Beginners

Here’s how I’m trying to prevent a stock market crash from ruining my portfolio

Jon Smith explains which shares he's avoiding and what he's thinking of buying to try and protect his portfolio from…

Read more »

Bearded man writing on notepad in front of computer
US Stock

Call me crazy, but here’s why I’m eyeing up the CrowdStrike share price

Jon Smith notes the carnage caused by Friday's global outage, but flags up why he's thinks the CrowdStrike share price…

Read more »

Investing Articles

What do Hargreaves Lansdown results mean for the share price?

The Hargreaves Lansdown share price has surged in recent months on takeover expectations, but what will the recent results mean…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

Newly minted S&P 500 stock CrowdStrike just crashed! Here’s why

Shares of S&P 500 firm CrowdStrike collapse as the company lies at the centre of a global IT outage. What…

Read more »

artificial intelligence investing algorithms
Investing Articles

Is Nvidia heading for the mother of all tech stock crashes?

Nvidia stock has soared, and the company briefly became the most valuable on the planet. But not everyone’s an AI…

Read more »

Dividend Shares

The BP share price is down 15% in 3 months. Time to buy?

In the space of just a few months, the BP share price has fallen by a double-digit percentage. Is this…

Read more »

Investing Articles

A 5.4% dividend bargain I’ll buy over Lloyds shares

Harvey Jones loves his Lloyds shares but now he's found a high-yielding FTSE 250 stock that may offer even more…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Recommended by Warren Buffett, this top hedge fund’s betting on Rolls-Royce shares

When Warren Buffett ended his previous investment partnership, he recommended Bill Ruane’s Sequoia Fund. Today, its largest investment is in…

Read more »