The Donald Trump rally has certainly been awesome, but markets tend to get carried away, leaving us with a lot of questions. Mainly, are there stocks out there that can withstand the turbulence? I think a good choice is AT&T Inc. (NYSE:T)
Investors may have already factored in much of the potential for lower taxes and regulations.
And besides, there are still lots of risks swirling around — such as the impact of the soaring dollar or the possibility of a global trade war. Heck, perhaps Trump could cause some type of geopolitical incident through his prolific use Twitter Inc (NYSE:TWTR) alone!
Granted, it’s all speculation … But this is why it is reasonable to get a bit more conservative with investing. Let’s face it, a correction can come quickly. Just look at what happened this time last year.
The Case for AT&T Stock
After all, the company has been around for over 130 years. The AT&T stock dividend yield is also a juicy 4.7%, and the company has increased the payout for an impressive 32 consecutive years!
Now it’s true that T stock has its issues: The debt load will hit a burdensome $170 billion after the acquisition of Time Warner Inc (NYSE:TWX). Oh, and by the way, this deal has its own inherent risks. For the most part, the entertainment business is volatile and there can be long dry spells.
However, megadeals usually have hiccups. The key is whether management has the ability to manage through them. The good news is that AT&T has been fairly disciplined with its dealmaking. It is also encouraging that the company is willing to take some bold moves.
For example, AT&T has built a next-generation streaming service with its DirecTV deal. The monthly subscriptions start at an introductory $35 a month (moving up to $60 after the offer ends) — which should be attractive to cord cutters — and there are over 100 channels from premium content providers like Walt Disney Co (NYSE:DIS) and TWX. The service is also multi-platform, with availability on smartphones, Apple Inc. (NASDAQ:AAPL) TV and Amazon.com, Inc.’s (NASDAQ:AMZN) Fire TV.
So far, there have been glitches with the services. This shouldn’t come as a surprise. If anything, it looks like demand has actually been strong (the sales targets were hit in a single day) and this may be making it difficult to handle the heavy volumes. In fact, the success of the service is probably an important factor in the end-of-year rally for AT&T stock.
Bottom Line on AT&T Stock
Yet the main attraction of AT&T stock is the recurring revenues. Consider that there 79.4 million business wireless subscribers, 53.9 million consumer wireless subscribers and 25.3 million video subscribers. More importantly, AT&T has the benefit of a powerful moat — that is, a nationwide fiber optic network. Replicating this would be incredibly expensive.
As a result, AT&T stock has produced consistent financials. During the latest quarter, revenues increased by 4.6% to $40.9 billion and operating income increased by 8.2%. Cash from operations also came to a hefty $11 billion.
Finally, AT&T stock is trading at a reasonable valuation, with forward price-earnings ratio at about 14. By comparison, Comcast Corporation (NASDAQ:CMCSA) trades at 18 times projected earnings and Dish Network Corp (NASDAQ:DISH) sports a multiple of 23.
But again, for investors looking for a relatively stable play, AT&T stock does fit the bill — especially given its large base of subscribers and attractive dividend yield. Although, there is also the potential for some nice catalysts to juice things up even more, such as with the streaming service.
Tom Taulli runs the InvestorPlace blog IPO Playbook and is a registered investment adviser representative (you can visit his site to learn more about his financial planning services). He is also the author of various books on investing like All About Commodities, All About Short Selling and High-Profit IPO Strategies. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.