These year has been tumultuous for equities. The stock market has been hostage to headlines. We’ve had corrections launched by tweets or a hotter than expected jobs report. Mostly fears are revolving around the tariff war between the United States and China. Over the weekend, we had some relief on that front since the leaders of the two countries struck a deal for a reprieve from adding new tariffs. So Monday, the markets rallied in celebration. AT&T (NYSE:T) also participated, spiking up 1.5% on the news. But the risks are not yet gone and this is far from a good story to tell on that stock.
Even though AT&T stock has been on a 9% rally from the end of November, it’s merely now getting back to the ledge from which it fell apart a month earlier. The last reaction to earnings was horrendous. So technically, AT&T stock faces resistance at these levels since they have been pivotal. Both bulls and bears would want to fight it out thereby creating congestion in the short-term.
Fundamentally, T stock is not bloated as it sells at a price-to-earnings ratio of 6. But there are those who question its balance sheet among other things. The bullish thesis is now muddled, so it is not easy to evaluate its prospects for the long term. I don’t know if I should just compare it to Verizon (NYSE:VZ) or Disney (NYSE:DIS). Luckily, in both cases, its value is in line with either.
So going long AT&T stock at these levels for the long-term is not likely to be a major financial disaster. But I fail to see the urgency to do so. If the stock market is falling, T stock would not rally on its own.
So why own it right now in a full position?
On the other hand, year-to-date AT&T stock is down 17%, so it has a lot of making up to do and that could be exciting for a few weeks.
Even though conviction is rare, T stock is still a buy right here. Investors who want to build a long-term fundamental hold can start here. It is never wise to jump all in, so doing it in tranches is the smart way to build a healthy portfolio.
These are uncertain times and we still have all the risks that were looming at the end of last week. The tariff war still exists and this was merely a reprieve for 120 days and nothing more.
Furthermore, we have rising interest rates in the U.S. and the threat of inverting the yield curve. That alone could cause a big slow down in Lending. If that happens, this will surely affect all stocks. Banks will stop lending, thereby restricting the money flow necessary to feed growth.
Nevertheless, I am still optimistic that the short-term macroeconomic environment still favors socks. Companies are reporting strong results, but their socks are falling on weaker than expected forward guidance. This is a case where management is padding. They want to under-promise and over-deliver. This necessary reset in analyst expectations is not so much an actual slow-down in current P&Ls.
Traders are edgy, so they overreact. A perfect example of this is the drubbing that Apple (NASDAQ:AAPL) recently took. This is arguably the best company on the planet and all it took is a vague warning from a supplier to start a 20% deluge in the stock. Even when AAPL management categorically denied the rumor of the slow down in cell phone sales, investors still doubt it. This happened again just this morning.
Bottom Line on AT&T Stock
Investors are trigger happy and AT&T stock is trading more violently than it should. The bottom line on AT&T is that the investment boils down to the individual preferences and portfolio balance. This is an iconic company with proven management. They have consistently delivered results over time. I bet they will continue to do so for years to come and time will tell. My only caution is for investors to leg into a full position a bit at a time so not to get caught entering at the wrong time.
Experts on Wall Street are mostly cautious with a hold rating on T stock. The stock is trading below their average price target, but if the market rally continues, AT&T could catch an upgrade in its rating to spruce up more buying.
Click here for more of my market thesis and get an ongoing free copy of my weekly newsletters. Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on Twitter and Stocktwits.
