It’s easy to look at the troubles AT&T (T) has had in the past year or two and write it off as a blue chip of a bygone era. But there are two key factors that long-term value investors ignore at their peril.
The Chinese have a saying that the two greatest gifts you can give your children are roots and wings. And the same can be said of any good long-term value stock. And both these attributes remain at the heart of T.
It’s just that this massive telecom is in the midst of a significant transition, and you can’t turn this battleship in a quarter or two — it takes a while. That is why the stock is throwing off a stunning 5.7% dividend … it’s paying you for your patience.
Remember when the transition from landlines to mobile began? People were predicting the end of T then, expecting it to fall into a second-tier role as the hot new mobile telecoms broke onto the scene. But it adjusted and changed its business to become the No. 2 mobile carrier in the U.S., outdistancing its closest competitor by a factor of two.
But now the game is changing again.
The Future Looks Bright for T Stock
While maintaining a strong mobile presence is important, the mobile revolution is ushering in significant changes in the way people access information and it’s creating huge opportunities.
For example, 4G LTE is 10 times faster than 3G, so networks can now distribute much more information to consumers. That not only opens up possibilities for viewing content — a big reason T bought DirectTV (DTV) and completed the acquisition a couple months ago — but also communicating in real time with machines and people.
It’s called the Internet of Things, and it’s one of the most important trends in technology for the next five to 10 years. For example, T is planning to launch WiFi hotspots for cars, and give farmers the ability to monitor and control irrigation on their fields in real time. What’s more, T is working with Tesla (TSLA) and other carmakers to allow the vehicles to be monitored in real time. And in TSLA’s case, computer system upgrades can be made over the network. This is just the beginning of the possibilities.
Learning how to become part of the IoT economy is major initiative for AT&T, and next year it expects to see about $1 billion in revenue from the sector. It has set up five workshops around the country to work with small and large businesses that are interested in collaborating with AT&T on projects in IoT and cloud-based processing. And none of its traditional mobile competitors have made any significant moves into the space yet.
This will also be a major advantage for its new DTV-derived content and distribution assets.
These are the projects that will give AT&T wings in the coming quarters. What gives T its roots, however, is the fact that the company, by its very size, is a rock-solid port in the storm when the markets gets overheated.
If the old saw about the markets hating uncertainty is true, T stock keeps investors calm. Rate hikes, oil prices, ISIS, Syrian refugees, China’s economic slowdown, emerging markets in a tailspin, Russia’s saber-rattling — there are plenty of unknowns out there. And in these times, stocks like AT&T are favorite spots for the smart money.
It’s a cash driven business, and even if it isn’t growing during tough times, it’s built its infrastructure through acquisition and upgrades to take full advantage when the skies clear.
That is where the stock is now. And it makes a lot of sense to grab this one while it’s sitting close to its 52-week lows.
Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won seven Best Financial Advisory awards from the Newsletter and Electronic Publishers Foundation.
