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The 2 Best Wireless Stocks to Buy in 2017 – Motley Fool

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When an industry only has four major players, each one stands out more than if the field were crowded. In wireless, the big four of Verizon (NYSE:VZ), AT&T (NYSE:T), T-Mobile (NASDAQ:TMUS), and Sprint (NYSE:S) tend not to let consumers forget they are rivals.

The two smaller players in the space — No. 3 carrier (by customer totals) T-Mobile and No. 4 Sprint — have fairly blatantly gone after their bigger competition. Like boxers, or mixed martial arts fighters trying to get a fight with the champion, the two smaller carriers endlessly try to provoke their bigger rivals.

That’s a tactic that works in the fight game — and it works here, too. T-Mobile has built its business around provoking AT&T and Verizon by not just pointing out their faults, but also correcting them. That makes CEO John Legere’s company the top stock to own in wireless, while indirectly creating a path to success for Sprint.

T-Mobile CEO John Legere.

Legere has not been quiet and that has helped his company. Image source: Getty Images.

What are T-Mobile and Sprint doing?

Sprint has built its entire current ad campaign around the idea that Verizon and AT&T, which for a long time marketed the superiority of their networks, no longer have that edge. The company even uses Verizon’s former pitchman Paul “Can you hear me now?” Marcarelli in commercials where the goal is to point out that all networks are basically the same.

That tactic has only helped Sprint a little. The company has stopped bleeding customers, but arguably, its ads are doing more for T-Mobile.

Legere’s company has built its marketing around doing things differently than its rivals. This has included being the first to drop contracts, the first to end device subsidies, and the first to have all unlimited data plans.

The one thing stopping people from making the switch from AT&T and Verizon to T-Mobile (or Sprint) was network quality. That’s no longer the case, and it’s not just Sprint making that argument. OpenSignal and Nielsen both have data that shows that the difference between the carriers has shrunk. That removes the last reason consumers have to pay more for Verizon and AT&T.

Add all of that together, and it explains why T-Mobile has gained over 1 million customers each quarter for four years. Sprint has not done the same, but it does have its stock needle pointing up. That’s because, like T-Mobile, it’s cheaper for consumers to use than the big two, which should help growth, and it’s well-positioned to be acquired.

Why are T-Mobile and Sprint top stocks?

T-Mobile’s status is obvious. The company has led the industry in growth for five straight quarters, and it’s very clear its message resonates with consumers. In addition, as the public starts to understand that AT&T and Verizon are not offering vastly superior (or even better) networks, more people will make the change.

Sprint has been slow to turn things around, but its most-recent quarter was promising. It added almost 1 million post-paid customers in 2016, about double what it did the previous year. In addition, the company grew net operating revenue for the first time in three years.The most important thing for Sprint shareholders is that the company’s majority shareholder SoftBank has made it clear that it’s open to selling the company. T-Mobile would be the preferred partner, and informal talks have taken place between the two companies. Even if that deal does not happen, however, Sprint should have other suitors.

Most major cable companies have dabbled with the idea of going into wireless, and both Comcast and Charter would be possible bidders if the T-Mobile talks break down. Sprint is becoming more viable on its own, but that makes it even more likely it will be sold. T-Mobile, even if doesn’t buy its rival, is very well-positioned for years of future growth.

Daniel Kline has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Verizon Communications. The Motley Fool recommends T-Mobile US. The Motley Fool has a disclosure policy.