Household Name Enters Wireless Carrier Market
The US wireless carrier market is controlled by three major players: Verizon (ticker: VZ), AT&T (ticker: T), and T-Mobile (ticker: TMUS).
Each company has about 30% to 35% market share, so no single company is dominating the others.
But one major company is looking to throw its hat into the ring.
Last month, SpaceX (ticker: SPCX), Elon Musk’s newly traded company, announced it was entering the wireless carrier market.
The announcement came during SpaceX’s earnings call.
SpaceX owns Starlink, a satellite-based internet and communications provider.
Satellite communications are the next big thing because wireless carriers don’t need to worry about cell towers or rough geography.
As long as a customer can see the sky, they can access service.
However, Starlink is looking to cut out the middleman and connect its satellites directly to smartphone users.
What does Starlink’s entry mean for the market?
Since early August, AT&T’s and Verizon’s stock prices have risen (T-Mobile’s stock price has been flat).
It’s too early to tell if Starlink will be a major disruptor in the wireless carrier market.
But it’s not worth the risk.
If you own a lot of stock in one of the big 3 carriers, now is a great time to sell some shares.
Where should you put your money instead?
SpaceX seems like a natural place, but the stock is insanely overpriced.
Its price-to-sales (P/S) ratio of 76x is one of the highest in the entire stock market.
Instead, these are some of the stocks I’m looking at to take advantage of Starlink’s new endeavor.
One of Starlink’s major chip suppliers is STMicroelectronics NV (ticker: STM), a Dutch semiconductor company.
Luckily for us, STMicroelectronics trades on the New York Stock Exchange, so there’s no need to wake up at 3 AM to trade in Amsterdam.
Starlink will need to expand its satellite coverage significantly, which means it will be buying more chips from STMicroelectronics.
There are certainly other more profitable or faster-growing semiconductor companies, but none of them are as closely tied to Starlink.
Plus, STMicroelectronics is trading at a great price.
Its forward price-to-earnings (P/E) ratio, which uses next year’s earnings, is only 19x and is lower than many of its peers.
Starlink brings in a lot of money from T-Mobile, its partner for satellite communications.
But if Starlink goes from cooperator to competitor, T-Mobile will look elsewhere.
AST SpaceMobile (ticker: ASTS), a satellite communications provider, already works with Verizon, but it has no relationship with T-Mobile.
AST SpaceMobile is a direct competitor to Starlink and could build a relationship with T-Mobile since AST SpaceMobile has no interest in becoming a wireless carrier.
The satellite company is small but has amazing growth prospects.
Wall Street analysts are projecting revenue to increase 50x between now and 2030!
But understand there are significant risks here.
AST SpaceMobile’s P/S ratio of 150x is one of the few in the market higher than SpaceX’s ratio.
Starlink’s implementation of its new network opens up a great opportunity for Flex Ltd (ticker: FLEX).
Satellites work well in less populated areas, but in big cities, the network would crash from enormous volume.
Starlink is planning to run a hybrid network of satellites and small cells, which would handle the high network demand in large cities.
Now, Starlink already has the hardware in place in big cities with its existing dishes.
But these dishes receive transmissions only from satellites and are unable to broadcast.
Flex Ltd fills the gap by providing the missing infrastructure.
Flex is an electronics manufacturer with its headquarters right down the street from SpaceX.
Specifically, Flex manufactures the radio infrastructure needed to convert Starlink’s dishes from receivers to transmitters.
And if Starlink wants to get into wireless quickly, it should give Flex a call.
Even if Starlink doesn’t end up working with Flex, the stock is still great.
Over the past decade, Flex has increased revenue by 13% each year.
Plus, Flex’s return on equity (ROE) of 18.8% is one of the highest among its competitors.
Are you excited about a potential 4th large wireless carrier in the US?
Coach Parker
Category: Stocks
