The S&P 500 Communication Services sector carries a forward P/E of around 19x in 2026 — a single, tidy number that hides one of the strangest groupings in the whole GICS classification. The sector puts mega-cap advertising businesses next to heavily indebted phone carriers and struggling legacy media companies, then reports it all as one line on a sector dashboard. Screening it as though it were one business is how you end up with a filtered list that makes no sense.
One sector, three different businesses
Communication Services groups internet and streaming giants — Alphabet, Meta Platforms, Netflix — with legacy telecom carriers like Verizon, AT&T, and T-Mobile, and traditional entertainment companies like Disney, Warner Bros. Discovery, and Paramount. The first group sells advertising and subscriptions at software-like margins. The second group runs capital-heavy physical networks and pays out most of its cash flow as dividends. The third group is somewhere in between, weighed down by legacy cable and box-office economics.
The weighting makes the distortion worse. Alphabet's two share classes alone account for close to three-quarters of the S&P 500 Communication Services Select Sector index by market cap. When you read a "Communication Services sector P/E of 19x," you're really reading a number dominated by one advertising company, not a representative blend of telecom, media, and internet businesses.
Why a single debt filter doesn't work here
Debt-to-equity is where mixing these businesses gets genuinely misleading. Telecom is structurally capital-intensive — 5G buildout, spectrum licenses, and fiber deployment require continuous, multibillion-dollar investment, and large carriers commonly run net debt-to-EBITDA in the 2.5x to 3.5x range as a normal, sustainable part of the business. Apply that same leverage to an ad-driven internet company and it would look alarming; apply an internet company's low-debt standard to a telecom carrier and you'd screen out nearly the entire industry, including perfectly healthy ones.
The practical fix is to screen debt relative to the sub-industry, not the sector. If you're evaluating telecom names specifically, a debt-to-equity ceiling calibrated to telecom peers keeps the comparison fair. If you're screening the ad-and-streaming names, a much tighter debt ceiling is appropriate, since there's little structural reason for those businesses to carry telecom-style leverage.
Growth or yield — pick your lane before you screen
The sector also splits cleanly along growth versus income lines, and it's worth deciding which one you're actually after before setting filters. The internet and streaming names are where most of the sector's earnings growth is concentrated — Alphabet and Meta are among a small handful of companies projected to drive a disproportionate share of S&P 500 earnings growth in 2026, largely on AI-related advertising and cloud demand. Telecom carriers, by contrast, offer little of that growth but typically carry dividend yields well above the sector average, funded by stable, contracted cash flows rather than expanding markets. Running one screen for high-ROE, low-debt growth names and a separate screen for high-yield, debt-appropriate income names — rather than one blended Communication Services filter — will surface far more useful results than treating the sector as a single homogeneous group.