Pro Analysis

Tom Lee: Buy telecom stocks for the 'Santa Claus' rally

AT&T signage is displayed on a monitor above traders working on the floor of the New York Stock Exchange.
Michael Nagle | Bloomberg | Getty Images
AT&T signage is displayed on a monitor above traders working on the floor of the New York Stock Exchange.

Fundstrat's Tom Lee recommended telecom services stocks for a continued market rally, predicting the group will be one of the top beneficiaries from Donald Trump's policies next year.

"We continue to expect the market to finish the year higher [due to] Santa Claus rally, positive inflows and improving investor optimism," Lee wrote in a note to clients Friday.

"In 2016, 'portfolio strategy' mattered more than 'market calls.' We would add to telecom exposure."

The strategist cited how telecom stocks outperformed the market this month by 1.9 percentage points. Lee said the sector is trading a 25-year low in terms of price-to-earnings valuation relative to the market.

"We believe telecom services may be particularly positive levered to rising inflation given it is such [a] capital intensive business with significant invested assets — hence, rising inflation raises the ROE of the embedded assets," he wrote.

"Moreover, as many investors are aware, telecoms and cable have suffered from 'liberal' expansion and definitions of net neutrality — hence, could benefit from a Trump administration," he added.

Here are three Fundstrat-recommended telecom services stocks to take advantage of the call.