AT&T Inc. (NYSE:T) is the quintessential retirement play, and that’s likely not going to change anytime soon. But at the moment, T stock resembles a cryptocurrency, and not in a good way. Year-to-date, the telecom giant’s shares are down 10%. Although I still believe in its longer-term potential, prospective buyers should brace for more volatility.
All the drama surrounding AT&T stock, of course, has everything to do with the company’s proposed merger with Time Warner Inc (NYSE:TWX). If federal regulators approve the deal, it would be one of the biggest in American history.
Of course, in this politically charged environment, nothing is so simple. The Justice Department has sued to halt the merger, and we’re currently in the second week of the trial.
To assuage investors, InvestorPlace contributor Lawrence Meyers has written extensively about this case. To put it mildly, Meyers believes that the government is wasting its time.
He sees this as nothing more than entertaining showmanship, stating that “when the trial concludes, we will all be having a laugh at the Department of Justice’s expense. That assumes, of course, that the judge overseeing the trial doesn’t have a bout of unprecedented stupidity.”
A major reason why Meyers is so confident is that the Justice Department relies upon an invalid argument: that a vertical merger will incentivize AT&T Inc to deny certain channels to rival content distributors like Comcast Corporation (NASDAQ:CMCSA).
But that doom-and-gloom scenario won’t happen because AT&T would lose out on advertising and licensing revenue. Thus, T stock remains a compelling buy.
To be fair, the initial volley appears farcical. Justice Department attorneys resorted to sneaky courtroom tactics to sway the judge, which failed. A critical error almost caused their star witness to be struck.
Not Quite a Slam Dunk for T stock
I’m generally positive on AT&T stock, and I think with the market’s broader troubles, the telecom firm is on discount. But if you want a better entry point, patience is your friend.
Like Meyers, I believe that the merger will go through. But given some of the circumstances, I’m not nearly as confident. At the very least, I think we should take a step back and look at the trial objectively. We may realize the government’s case isn’t as crazy or stupid as it might initially appear.
The almost-struck witness is Warren Schlichting, programming executive from Dish Network Corp (NASDAQ:DISH). Schlichting made the expected testimony that having AT&T Inc own one of their best content providers represented an unfair impediment. Time Warner, using Schlichting’s words, is a “must have” in the television business.
He does have a point. Although streaming services like Netflix, Inc. (NASDAQ:NFLX) and Amazon.com, Inc. (NASDAQ:AMZN) provide great original content, it’s difficult to entirely replace “establishment” material. And while I very much enjoy YouTube content, most “vloggers” lack journalistic integrity.
My colleague might argue that DISH has nothing to worry about because AT&T will hurt itself if it denied programming. However, Schlichting seems to counteract that point, stating that “It is more lucrative to take subscribers than to collect programming fees.” If that’s true, the Justice Department’s case suddenly got more competitive.
We do have to acknowledge that Schlichting is obviously biased toward DISH. However, those extremely bullish on T stock make it appear as if this proposed vertical merger is a win-win for everyone. So just the fact that we have a major competitor complaining about it suggests not everything is rosy.
AT&T Stock Is Still a Buy, But Be Alert
We also must consider the Trump factor. Unless you’ve been in a coma, you know full well that President Trump hates Time Warner-owned CNN. He’s also threatened in the past to block this deal.
That sounds like a lot of hot air, and admittedly, we’ve seen much of that coming from the White House. Still, the commander in chief likes to keep people guessing. Bottom line: you can’t discount what he does or what kind of influence he can impose.
This isn’t to say that you should fear holding T stock. I love AT&T Inc for its long-haul fundamentals and its affordable (and generous) dividend yield. But we recently learned that “sure things” — the Broadcom Ltd (NASDAQ:AVGO) and Qualcomm, Inc. (NASDAQ:QCOM) failed merger comes to mind — aren’t always sure.
For me, you can still trust AT&T stock. However, you shouldn’t expect the next few weeks to be a cakewalk. Buy a little now, but keep the powder keg dry for a possibly greater discount later.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
