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Quarter-End Insights

Downturn Has Put Communication Services Firms on Sale

Google's online dominance should be able to withstand any shocks.

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The recently reconstituted communications sector has held up relatively well in the market sell-off but has still seen significant carnage. The Morningstar US Communication Services Index has declined about 16% over the past three months versus 19% for the broader market. Heavyweight Alphabet, which accounts for 28% of the sector index, is down only 15% over this period, though it has shed nearly $150 billion in value. Advertising spending will certainly take a hit as firms tighten budgets in response to COVID-19. Alphabet’s Google and YouTube platforms won’t be immune, but we don’t expect the firm’s online dominance to wane. The stock now looks more attractive to us than it has since the short-lived market downturn in late 2018.

Cold comfort: The sector has outperformed the broader market. - Morningstar

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