We have owned Verizon (VZ) and AT&T (T formerly SBC) since February 2004. Both companies were deep value, high dividend plays. Like most undervalued blue chips, often things take a few years to turnaround.

For value investors, the cash register is beginning to ring. Here are some recent technical comments from Dorsey Wright on the telecoms:

In yesterday’s report, we discussed how Financials were starting to gain traction, especially compared to their Energy brethren. This potential (sector) rotation fits in with our discussion on the market, and how it might take on characteristics similar to that of 1994 – which was truly a year that was typified by “sector rotation”. In line with this potential “rotation” scenario, we have seen another sector that is starting to ring up returns – the Telecom sector; and in particular, it is the Baby Bells that are calling for our attention.

ing on a performance basis is the returns of the Baby Bells, both individually, and as represented by ETF’s, such as the iShares Dow Jones U. S. Telecom [IYZ] and the Telecom HOLDR’s Trust [TTH]. For the past three years, these stocks and ETF’s have been notable laggards, posting gains half to a fifth of what the market has given you. But notice the recent performance; in the first two months of 2006 we are seeing just the opposite. The broad Telecom sector is significantly outperforming Energy, while also posting superior gains over the SPXEWI. But what is more noteworthy is the performance of the Baby Bells. For example, BellSouth [BLS] has rung up a gain of 16.79% so far this year, while Verizon [VZ] is up 13%. Even the old “mother” of the Baby’s – AT&T [T], is ringing the performance bell with its hefty gain of 13.4% for two months of action.

Basically, another word for this recent action is positive relative strength. Albeit in the very short-term, but nonetheless it is something to recognize. The fact that BLS, T, and VZ are in the Top 5 in X Rank shows that the Baby Bells are gaining traction compared to their Telecom peers.