AT&T (NYSE:T) set a new 52-week high of $35 in midday trading on Monday (closing a tick lower at $34.59), a day that investors were once again more focused on getting out of stocks, thanks to Europe’s ongoing mess.
And that says just about everything you need to know about this market.
In a nutshell, AT&T is the great unsinkable blue-chip stock — and investors are looking for the most stable investments possible, even if the returns aren’t all that impressive. Archrival Verizon (NYSE:VZ) likewise popped to a 52-week high on Monday at $42.95, before closing at $42.56.
Consider these facts about AT&T stock:
- It has a market cap of $200 billion, making it the eighth-largest publicly traded stock in America.
- It has annual revenue of over $120 billion annually, making it the 12th-largest U.S. company by sales.
- It turns over $19 billion in profits — more even than Walmart (NYSE:WMT).
- It has a dividend of 5% at current valuations, the best of all the Dow Jones Industrial components.
- Because of government regulation and the capital-intensive nature of its business, the barriers to entry for new competitors are prohibitively high.
- In this digital age, AT&T services have become more of a necessity than a luxury.
So, short of an apocalypse, AT&T isn’t going anywhere — thus investors can be guaranteed that their money is safe. And while growth prospects aren’t exactly robust, baseline demand remains strong — and the plump dividend offers some shareholder value.
This is exactly the type of investment folks are looking for these days, and it’s no surprise that AT&T stock is up 15% so far in 2012 to set a new 52-week high.
Nobody is chasing growth, since the market’s volatility seems to take away as often as it gives. Thus, stability and reliable revenue are in focus. AT&T is an entrenched telecom stock with little competition and little chance of a disruptive startup shaking up the space. AT&T essentially holds a duopoly with Verizon in the wireless market, with Sprint (NYSE:S) steadily bleeding red ink a considerable distance behind.
Income is also a big selling point. With 10-year Treasury bonds returning just 1.6%, many investors are looking for yield elsewhere. Stable dividend stocks are it, and AT&T has paid dividends back to 1984 when it was Southwestern Bell — and longer, if you’re willing to look beyond the antitrust breakup of the Baby Bells.
So should you buy? Maybe … but there’s serious risk of buying a top in this stock since, obviously, growth is slow to come by. Revenue is up just 2% from 2008 numbers, and that’s not annualized, either. I’m talking 2% total. And the P/E is approaching 14 now for fiscal 2013 earnings, which — considering the forward P/E of 11 for Apple (NASDAQ:AAPL) — should give you pause. The market is simply not chasing higher earnings multiples in this environment.
It’s also worth noting that after the 50% of its revenue that comes from wireless, the next biggest chunk of AT&T is “wireline data,” or landline Internet and data access. That’s 26% of AT&T revenue. Competition is light here, but admittedly more brisk than in the wireless market, with cable providers like Comcast (NASDAQ:CMCSA) and Time Warner (NYSE:TWX) in the mix. Plus, more folks are “cutting the cord” as wireless devices become standard; landline service just isn’t as crucial as it once was.
To top it off, even though shares are up year-to-date, they’re down -13% in the last five years vs. just a -8% loss for the broader Dow Jones Industrials, and up only +5% in the last 10 years against the Dow’s 26% rise. That excludes dividends, of course, but it tells you the actual stock of AT&T isn’t much of a money-maker.
All that said, you’d be hard pressed to find a more rock-solid stock right now, and the dividend is big and bulletproof.
My 2 cents is that you should wait for a pullback this summer. AT&T typically trades in a tight range but could easily sell off 10% if a rash of bad headlines and panic trading hit the Street. I wouldn’t even look for an entry until shares are under $32 — and if for some reason the stock drops 15% to under $30, you’re in good shape.
Just remember that in 2009, AT&T briefly was trading for under $23 — a loss of almost 50% from its peak. So, there are no guarantees that even this blue chip can’t crash and burn if the market melts down.
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace??.com or follow him on Twitter via @JeffReevesIP. As of this writing, Jeff Reeves did not own a position in any of the stocks named here.