To be quite blunt, AT&T Inc. (NYSE:T) from an investment perspective has been disappointing. I’ve advocated for T stock in prior articles for its immense resources and willingness to take smart, relevant risks. Plus, AT&T stock is too boring to short. Yet with a surprising 14% year-to-date loss, is it time to rethink the strategy?
Unfortunately, it’s easy to play the “negative Nancy” game with the telecom sector. Not only does AT&T have to deal with its own problems and challenges, it has to contend with fierce competition.
As InvestorPlace contributor Richard Saintvilus notes, Verizon Communications Inc. (NYSE:VZ) is the market leader in the wireless market. Both T and VZ have squared off in the past, and more of the same is guaranteed.
Towards the end of last month, AT&T and Verizon executives met with President Trump to discuss the latest 5G technology. Advancements in the wireless sector are supremely critical as 5G could potentially reach “data speeds 50 to 100 times faster than 4G LTE networks.” Not surprisingly, AT&T and VZ committed billions of dollars to attain a competitive edge in the next-gen technology.
But T stock investors can’t get tunnel vision on Verizon alone. T-Mobile US Inc (NASDAQ:TMUS) and Sprint Corp (NYSE:S), who were also present at the White House meeting, are constantly nipping away at T’s market share. T-Mobile in particular is rather ornery (from AT&T’s perspective) with its seemingly endless promotions.
As InvestorPlace’s Nicolas Chahine rightly states, the battle of the telecom giants “… benefits us, the consumers, but puts tremendous pressure on the sector stocks.” This pressure is hurting T stock right now, but I believe brighter days are ahead.
T Stock Is Stronger Than It’s Given Credit for
Although I hate to compare negatives — I believe a company should boast of its strengths, not that it’s the least bad option — AT&T stock is in a good position relative to the competition. Its primary rival VZ is down 16% YTD, compared to a loss of 13% for AT&T.
I’d also like to point out that the technical strength for VZ appears to be somewhat weaker than T. For example, since the beginning of June, Verizon shares have shed more than 6% in the markets. AT&T, on the other hand, has dropped 4%.
Admittedly, that’s just nit-picking. But the difference between the two rivals should widen, with T stock coming out on top. I argued previously that AT&T made the wiser acquisitions. It has also restrained itself from getting too bogged down with excessive deal-making.
Saintvilus further crystallizes why AT&T stock is the better bet over VZ. He writes that “the proposed $85 billion acquisition of Time Warner Inc.(NYSE:TWX) would give AT&T the revenue diversification it desperately craves.” Specifically, Saintvilus is eyeing popular mainstream content like HBO’s Game of Thrones, as well as business opportunities that typically face less scrutiny than telecom. Finally, Time Warner would help AT&T attack the targeted advertising sphere.
We also shouldn’t forget that T stock has its own plans for 5G as well. With plans to partner with Qualcomm, Inc. (NASDAQ:QCOM) and Telefonaktiebolaget LM Ericsson (NASDAQ:ERIC) for research and development of the 5G network, AT&T is ready to take it to Verizon. Furthermore, T has incredible synergies to exploit thanks to its immeasurable assets.
AT&T Stock Represents Great Value
At the moment, T stock is one of the more generous companies in terms of dividend yield. To be honest, that’s probably the reason why most people even bother to look at the telecom giant. Recently, there’s rumblings go around as to whether such yields are sustainable. But with major tailwinds moving in its favor, I think AT&T has a chance.
Finally, we should talk about valuation, which is a metric that both Saintvilus and Chahine forwarded. Looking at the numbers, T stock is cheap relative to the competition and the broader markets.
I’m not too big on assessing a company based strictly on its trailing earnings performance. Too many elements can “manipulate” the metric to make it say a variety of things. Nevertheless, I love the context of AT&T’s discount. This is one of those rare opportunities where you find a mega-firm with exciting growth potential.
The bears may criticize other aspects of T stock, and they have that right. However, when you’re dealing with a company of this caliber, it’s important not to lose sight of the forest for the trees. Unlike other stalwarts, AT&T isn’t stuck in the past. That vision alone has significant merit that should earn a second look.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
