Source: PaxForex Premium Analytics Portal, Fundamental Insight
With a fairly attractive P/E ratio and negative earnings per share over the past twelve months, it seems that something is seriously wrong with AT&T, once a great telecommunications company.
Is it safe to say that we are now witnessing a tipping point that is worth your hard-earned investment dollars, or should you stay away from AT&T's sinking boat?
Recent analyst comments have only added to the gloomy atmosphere surrounding AT&T stock. Analyst firm MoffettNathanson recently downgraded not only T-Mobile but also AT&T and Verizon Communications, citing a "growing mismatch" between the industry's growth rate and internal expectations of the three major telecom companies. Subscriber growth is no longer what it used to be, and the telecom giants are trying to mask a lack of success and development.
AT&T Chief Operating Officer Jeff McElfresh continues to make a pretty brave face during reports and conferences with investors. At a technology and telecommunications symposium last month, for example, the conference host brought up the possibility of cable companies invading the wireless market with low-priced packages. McElfresh brushed off this potential threat with this rationale:
"Share or share change is not a significant metric for us," he said. "At some point, cable operators are going to have to face the cost of continuing to serve a growing wireless subscriber base, the evolution of phones, and the cyclicality of that process. So I think they could potentially have margin issues."
In other words, the cable giants can boldly venture into the wireless market because they will eventually find that profit margins are tight. As we know, AT&T found that out years ago.
Meanwhile, AT&T's once generous dividend yield of 5.8% is starting to look like a warning signal. As we've noted many times before, excessive dividend yields can be a sign of problems lurking beneath the surface. In this case, the yield is inflated by the low stock price, and the free cash flow payout policy doesn't make much of an impression. AT&T cut its quarterly dividend payout in half last year but ended up spending 70% of its profits on dividends. If not for the cut, AT&T would already be funding its quarterly dividend payout from its dwindling cash reserves.
All of this paints a pretty bleak picture for AT&T investors. But don't feel bad - you can calmly sidestep this telecom veteran and find plenty of better ideas in a rapidly changing market.
As MoffetNathanson has pointed out, the telecom industry is not at its best right now, but T-Mobile still strikes me as the best option in this unlucky sector. T-Mobile's growth prospects are head and shoulders above those of AT&T and Verizon. And while Verizon may not be as interesting as T-Mobile, it is still a solid choice for investors who don't mind a stagnant but reliable leader in the telecom sector. Verizon's profit margin is hard to beat. AT&T did well on the "steadiness" part but missed the call for "reliable" results.
So you have a choice, even in this troubled industry. And last year's severe price drop created a lot of simply delightful investment opportunities in sectors with much better growth prospects.
The bottom line is that AT&T may not be the best investment choice in the current market, but there are plenty of strong investment alternatives for seasoned investors. So if you've been thinking about buying AT&T stock, you might want to think again and consider other options.
As the saying goes, "when one door closes, another opens." And in today's low-price market, there are plenty of doors waiting to be opened when the depressed economy picks up again. Unfortunately, it's unlikely that AT&T will be among the biggest winners when that day comes.
As long as the price is above 19.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 19.34
- Take Profit 1: 19.70
- Take Profit 2: 20.40
Alternative scenario:
If the level of 19.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 19.00
- Take Profit 1: 18.50
- Take Profit 2: 18.00
