META, NFLX top chart as communication services gainers; PARA, VZ and T among losers

Communication Services Select Sector SPDR Fund ETF (XLC), which tracks S&P 500 Communication services sector, made a comeback in 2023 with a gain of 50%, compared to over 30% decline in 2022.

The communication services sector, which consists of stocks including Alphabet (GOOG), Meta Platforms (META), Disney (DIS) and AT&T (T), is one of sectors other than Information technology (XLK) and consumer discretionary (XLY) that has outperformed the 25% gain of the benchmark S&P 500 Index in 2023.

A strong performance from established players such as Meta, Alphabet and Netflix, aided by strong AI leverage, rebound in digital ads as well as improvement in the global economy, has impressed investors and helped them to gain an optimistic outlook towards the sector.

Both Alphabet and streaming giant Netflix gained more than 50% in 2023, while Meta Platforms has doubled in value.

Industries 2023 Performance

Media & Entertainment rose 63.3% in 2023, while Telecommunication Services fell 3%.

U.S. stock fund flow in and out of the sector was mostly strong throughout the year, with little dip during the month of August and September. The Communication Services-focused ETF had a net outflow of $3.79 billion.

What are the top 5 movers in 2023?

• Gainers: Meta Platforms (META) +194%.
• Netflix (NFLX) +65.1%.
• Alphabet (GOOG) (GOOGL) +58.8%.
• Take-Two (TTWO) +54.6%.
• News Corp (NWS) +39.5%.
• Losers: Paramount Global (PARA) -12.4%.
• Match Group (MTCH) -12%.
• AT&T (T) -8.9%.
• Verizon (VZ) -4.3%.
• Fox (FOX) -3%.

What Quantitative Measures say?

XLC received a Buy rating from Seeking Alpha’s Quant Rating system with a score of 4.13 out of 5. The sector got A+ for liquidity and A for momentum. However, its risk category received a B- and dividends prospect got C-.

What analysts expect?

One analyst surveyed by Seeking Alpha in the last 90 days gave the XLC a Buy rating.

“This year, communication services have benefitted from not just capital appreciation (the best-performing sector in the markets), but additional fund flows as well, pointing to a more abiding sentiment shift,” pointed out a recent Seeking Alpha analysis.

On the other hand, Citi Research’s U.S. Equity Strategy report lowered rating on the sector to market weight from overweight and suggested that “expected growth drivers could run into broader economic pressures, along with valuation headwinds.”

However, the report had an optimistic view for Telecommunication services as fundamentals improved in the reported quarter and a lower interest rates outlook is helping with debt concerns.

Wells Fargo and UBS also gave the Communication Services sector a Neutral rating, while Jefferies analysts are Overweight on the sector.