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Gamble Wisely: AT&T, Inc.
AT&T, Inc. (T)
To play in the snow, or to shave down your pile of college apps? To relax with friends after school on a warm spring day, or to sit inside, alone in your dark office, and write an English essay? Unfortunately, we find that the fun or exciting choices do not always yield the best results. We often neglect to give the boring options a second’s thought, as the exciting ones easily capture our attention. Buying AT&T stock is one such boring choice, but it is also, undoubtedly, a wise one.
AT&T stock is a hibernating bear– dormant and unexciting. Since the beginning of the year, its share price has not seen any gains –only mild losses– nor have its volumes (the amount of shares traded daily, illustrating the how much attention a stock is receiving from investors) been particularly impressive. Its P/E ratio, 11.9x, is well below the industry average of 16.5x, indicating that there is little optimism among investors for AT&T’s immediate prospects. So with all of these troubled signs, how is AT&T a wise choice? The answer lies in AT&T’s potential for growth and its staggering dividend payments.
At its height, AT&T stock was about $43 per share; today it stands at little more than $25 per share. Of course, this loss is not ideal for AT&T, as the company would rather see strong, consistent stock growth, but it is fantastic for you. You can capitalize on this drop in share price by buying AT&T stock now while it is low. You have little to lose, as the its share price has not sunk below $20.90 in recent years, even in the depths of the recession. Yet the potential gains are enormous, about 72%, in fact, should it reach its peak once again. AT&T’s little risk for great potential gain is the signature of a good investment.
But let’s say that, for whatever reason, you buy AT&T stock and it continues to hibernate, which is certainly not out of the realm of possibility. What then? You can sit back and collect your dividend payments, currently a hefty 6.72% annually. In other words, AT&T pays you to own a piece of the company, and if a year from now its shares are still $25.28 each, you will still be 6.72% richer. To put it in perspective, a 6.72% annual yield will double your investment value in only about ten and a half years. Thus, AT&T is a great addition to your portfolio for the long run.
Yes, like a hibernating bear, AT&T, merely twitching in its sleep, is boring. But you better believe that once that bear wakes for spring, you don’t want to be the one who refused to give it some honey.
-Marc Bernstein
Sources:
Scottrade.com
ajb19454
April 25, 2010 at 7:06 pm
i enjoy honey! Could you make the bear share some with me?
Devin Doherty
March 10, 2010 at 7:11 pm
SO MUCH ECONOMIC JARGON+VOCAB
HEAD HURT BAD!
Devin Doherty
March 10, 2010 at 7:11 pm
But good article.
Mbernstein1
March 11, 2010 at 7:53 pm
Thank you. I’m just glad people are reading it– trying to make it as jargon-free as I can.
Mbernstein1
March 10, 2010 at 7:00 pm
Dimitri, I’ve actually responded that point in a different article (on Apple).
But, the bottom line is that with a market cap significantly greater than Verizon’s (150.6 bil vs. 84.4 bil) and significantly more liquid assets than Verizon (3.8 bil vs. 2.009 bil), AT&T can easily outbid all of its competitors for the iphone contract.
If the iphone contract does go to multiple carriers, that clearly would not be good news for AT&T. AT&T would suffer an initial hit on its stock price, which would soon stabilize I predict around $19-20 and then begin growth once again. And the high dividends would help investors break even from the loss. As a said, there is little risk.
However, AT&T is in the financial position to offer Apple a fantastic deal, so I would not count on AT&T losing its iphone monopoly.
Mbernstein1
March 10, 2010 at 7:01 pm
*As I said
dimitri halikias
March 10, 2010 at 8:32 pm
That’s a good point, but what about the google Nexus 1 and other new smart phones? How much of AT&T’s success over the past 3 years can be accredited to the iphone? Does AT&T have any other tricks up its sleeve, or are you predicting it to be more of a stable, long term investment? On an unrelated note, Berkshire Hathaway just joined in the S&P 500 last week, do you think that it is a reliable investment, or are you more concerned with the unclear line of succession following Warren Buffet, who is after all 79?
Mbernstein1
March 11, 2010 at 4:27 pm
Nexus 1 and other smart phones definitely pose some competition. But remember that Apple is renowned for its fantastic marketing abilities, and as the iphone has been on the market for several years, Apple has a leg up on the competition. But you are certainly right that the iphone will not be completely dominating the smart phone market.
If by “success,” you mean less negative growth than other companies (for the stock, that is), I would say that, of course, the iphone has helped AT&T stay afloat, but it certainly is no crutch. AT&T’s success is based on the size of its network and its number of customers. After all, in general, people are not running to the store to get the latest iphone when they’re out of a job, as has recently been the case.
And yes, I do predict AT&T to be a great stable, long term investment. T’s high yield and potential for growth significantly outweighs its risks, even if Nexus were to become the best selling smart phone.
As for Berkshire Hathaway, I’ll need to do some research before I can respond in depth. But as a preliminary comment, I’d say that although it is a GOOD investment, it is not a reliable one. Often when investors are presented with uncertainty (e.g., the company’s management), stock prices see greater volatility. As I’m sure you can guess, the portfolios I manage do not have close to enough funds in order to invest in Berkshire Hathaway, so I must admit that I don’t know much about Buffet’s company as of now.
dimitri halikias
March 11, 2010 at 5:19 pm
Ok, thanks for the insignt. You and Mintong should have your own segments on Wake Up BCC
Mbernstein1
March 11, 2010 at 7:57 pm
Haha, you’re welcome . . . I’m glad I made it through the Dimitri gauntlet. And yea, Wake-up B-CC would be cool.
dimitri halikias
March 10, 2010 at 4:12 pm
At the end of the year doesn’t the iphone’s contract with AT&T expire? If Apple chooses to use another or multiple carriers, what do you predict the affect on AT&T would be?
John Benson
March 9, 2010 at 10:46 pm
Like a hibernating Bernstein bear.
Had to be said.
Mbernstein1
March 10, 2010 at 7:07 pm
Benson: Thanks. Needed to be done.
And I forgot to cite my source in my last comment: like always, Scottrade.