Avoid This 5G Stock Even if it Trades at a Deep Discount

Investors should avoid an underperforming 5G stock even if it tanks and trades at a deep discount.

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The competition for 5G network dominance among the big players in Canada is fierce. Canada’s third-largest telco, Rogers (TSX:RCI.B)(NYSE:RCI), was the first out of the starting gate in 2020 when it announced the rollout of the 5G standalone core network.

Jorge Fernandes, Rogers chief technology & information officer, said then, “Considered the brain of the network, our 5G standalone core propels us forward on our path to bring the full potential of 5G to Canadians.” However, if you compare its current share price with BCE (+27.15%) and TELUS (+22.46%), Rogers (+4.29%) is the worst performer year to date.

Rogers total return in the last three years is -3.95%, while BCE and TELUS are far away with returns of +42.91% and +51.31%, respectively.  The deep rift between members of the Rogers family that led to a court battle recently isn’t helping the stock.

Moreover, the power struggle erupted at a time when Rogers is seeking regulatory approval to acquire Shaw Communications. The deep rift between family members remains, notwithstanding the easing of board room tension. Even if the stock tanks and trades at a deep discount, Rogers isn’t an attractive 5G stock.

Outperformer

Interestingly, Shaw outperforms the Big Three with its 78.18% year-to-date gain. Also, the country’s fourth-largest telco has delivered the most significant gains (+78.75%) in the last three years. At $38.34 per share, prospective investors can partake of the 3.12% dividend.

On May 24, 2021, Shaw shareholders voted overwhelmingly in favour of the $26 billion Rogers proposal.  Its executive chairman and CEO, Brad Shaw, said it was an important milestone in the journey to combine Shaw and Rogers. The business combination will create a truly national network provider with far-reaching and multi-generational benefits for all Canadians, says Shaw.

Brad Shaw adds both parties have taken an extraordinary and historic step. The merger would lead to a future with unlimited potential (connectivity and leading 5G technology). The $19.13 billion telco had no comment on recent events at Rogers except to say management is committed to closing the transaction.   

CEO transition

In the nine months ended September 30, 2021, Rogers reported a 5.88% and 0.87% increase in revenue and net income versus the same period in 2020. However, the $29.54 billion company generated $1.31 billion in cash flow from operating activities in Q3 2021, a 34% increase from Q3 2020.

On the Shaw deal, Rogers believes the combined entity will have the scale, assets, and capabilities needed to deliver unprecedented wireline and wireless broadband & network investments. The merged companies will likewise invest $2.5 billion to build in Western Canada over the next five years.

Besides the daunting task of securing regulatory approvals, Rogers has problems with the transition at the top. Long-time CEO Joe Natale resigned, and CFO Tony Staffieri will take over as interim president and CEO. Sisters Melinda and Martha, plus their mother Loretta Rogers, are against replacing Natale.

Review by three federal entities

The Canadian Radio-television and Telecommunications Commission (CRTC) has recently concluded public hearings on the proposed Rogers-Shaw deal. However, two more federal entities, the Competition Bureau and the Ministry of Innovation will review the proposal. Don’t expect approval or rejection anytime soon.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool recommends ROGERS COMMUNICATIONS INC. CL B NV and TELUS CORPORATION.

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