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Quarter-End Insights

Facebook Powering the Communications Sector

Traditional media stocks still look the most attractive.

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The Morningstar US Communication Services Index continues to trade largely in line with the broader market, with so-called FAANG stocks driving both. The sector has gained 6% since the end of June versus a 5% gain for the Morningstar US Market Index. Facebook, which accounts for about 20% of the sector index, was again the biggest positive contributor during the third quarter, gaining about 10% despite a bevy of headlines surrounding potential antitrust actions, proposed content regulation changes, and the fate of social media rival TikTok. With President Donald Trump approving a deal between Oracle, Walmart, and TikTok, the upstart social media platform will remain in the U.S., competing fiercely for consumers’ time and attention. However, Facebook has already responded, making Reels available on Instagram. In addition, the presence of a formidable emerging competitor could reduce antitrust pressure. While we believe Facebook’s moat is firmly intact, the shares are trading in line with our fair value estimate.

Mega-cap stocks have held communications in line with the broad market. - source: Morningstar

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