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Stock Strategist

Four Great Reasons to Look Abroad for Wireless Stocks

These firms are financially fit and poised to weather the downturn.

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Signs of economic weakness are beginning to show in markets outside the United States, including parts of Europe and Asia. Conventional wisdom would caution investors to avoid companies that are heavily tied to consumers in countries where economic conditions are worsening, on the fear that spending growth will decelerate--or worse, that spending will contract. Such concern has caused the share prices of wireless service providers to fall meaningfully in recent weeks. Although top-line growth and earnings will undoubtedly be pressured in a recessionary environment, we believe that wireless services are more than a discretionary purchase for many consumers, and that wireless companies in most nations should be able to navigate a downturn with relative ease. In addition, non-U.S. telecom stocks give U.S. investors the added benefit of diversification, as many of these firms generate strong cash flows in currencies other than the dollar.

Wireless Goes Mainstream
While wireless services used to be perceived as a luxury, mobile phones have become so prevalent in our day-to-day lives that many would consider them a necessity. This is especially so in developed markets. For example, New York University recently began requiring students to provide a wireless number to the school for emergency purposes, and students were not allowed to register for classes if a number was not given.

Jacqueline Zhang does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.