Ever the reliable investment, AT&T Inc. (NYSE:T) now faces a dubious milestone. From the start of this decade until the end of 2016, T stock averaged 11% in annual returns. That remarkable performance was helped in large part by strong double-digit returns in 2012 and last year. Currently, though, AT&T Inc is staring at a year-to-date loss of 15%.
Wall Street isn’t simply concerned about the poor showing in the markets. It’s that so far this decade, T stock has always put up positive returns. Granted, years like 2013 and 2014 were hardly standouts, but they did at least rise above break even. Without getting into fundamental granularity, lay investors enjoyed its steady behavior and of course, its generous dividend yield.
But now that T stock exhibits the kind of volatility akin to cryptocurrencies, investors are re-examining the AT&T Inc thesis. It comes down to a very simple question: why risk double-digit capital losses for single-digit passive returns?
Still, T proponents aren’t losing hope quite yet. InvestorPlace contributor Nicolas Chahine argues that the selloff in T stock went too far. Although he recognizes competitive challenges from rivals Sprint Corp (NYSE:S), Verizon Communications Inc. (NYSE:VZ), and especially T-Mobile US Inc (
NASDAQ:TMUS), AT&T Inc has its own solid base. Furthermore, shares represent decent value from a trailing-earnings perspective.
Others, like our own Chris Tyler, ask that you respect market signals. I’m biased but I think it’s valid advice; I’ve used the “respect the markets” pitch before. For T stock specifically, Tyler warns that debt-leverage questions over the “pending Time Warner, Inc. (NYSE:TWX) deal and possibilities of a future dividend cut” cratered technical support.
Basically, you should get out before the floor collapses. Is he right?
T stock is More than Just a Telecom Investment
I’m hesitant to disagree with Tyler because I follow his work and I find myself concurring more often than not. That said, T stock is a tricky animal. On one hand, you most certainly have to respect the mass wave of investor psychology. On the other hand, AT&T Inc. is itself a massive wave.
I agree with the bears that the nearer-term prognosis for T shares are not good. The telecom giant did breach strong technical support around the $36 level briefly and subsequent price action hardly convinces. In such a setup, weak-handed bulls may enter the markets thinking they’ve got a great discount. But when further selling pressure occurs, feeble hands are easily shaken.
You’re not going to see me get into too many debates about volatility over the coming weeks and perhaps months. Where I step off the train is the longer-term outlook. No matter how ugly and choppy T stock looks right now, you don’t want to miss out on its future. I agree with InvestorPlace’s feature writer James Brumley that the telecom’s 5G investment is a game-changer.
For AT&T Inc, the 5G network isn’t just about faster broadband connections. If that were the case, T wouldn’t be any different than every other mobile business. Rather, AT&T is taking a page out of Alphabet Inc‘s (NASDAQ:GOOG,NASDAQ:GOOGL) or Amazon.com, Inc.’s (NASDAQ:AMZN) playbook and delivering what Brumley calls “consumer-oriented 5G to the masses.”
At present, this means delivering its DirecTV services via the rapid-fire next-generation network. But in the future, AT&T’s vision expands deep into the Internet of Things and dramatically upgrading cloud computing.
Ignore the Nearer-term Ugliness
The cloud is where AT&T Inc. can make its biggest impact. Right now, the cloud is used largely as an invisible hard drive, with dedicated servers handling the processing and storage. But with a more developed 5G network, it will be possible to conduct data processing in the cloud itself. Simply put, that’s a mind-blowing revolution from how we traditionally view computing.
I must reiterate that these technologies correspond with AT&T’s future outlook. I highly doubt that it will have an impact towards stemming the current ugliness in the markets. Furthermore, I consider 2017 as a lost cause for T stock. Shares will have to gain approximately 18% to break even. It’s not out of the realm of possibility, but I’m not holding my breath, either.
If you’re looking for a quick buck, I don’t think T stock is your ticket to riches. But if you’re willing to be patient, AT&T Inc. looks like a discounted buy. Competitive headwinds and market psychology combined to beat up shares of the telecom giant. But this bleeding will eventually stop, and when it does T will resume its upward trek.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
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