If you’re looking for a safe stock, you could do worse than AT&T (NYSE:T) This especially is true in that, as confidence slowly erodes, AT&T stock remains dependable.
The current macro environment seems almost too good to be true. GDP is growing at a strong clip while inflation remains muted and unemployment is at rock-bottom levels.
Yet the markets are far from confident. Some of the latest economic reports have shown signs of weakness and there has been the inversion of the yield curve, which is often a harbinger of a recession.
Economic Uncertainty and AT&T Stock
The uncertainty with international trade looks to be the biggest wildcard. For the most part, the relations between the US and China are only getting worse. Plus, it looks as if there could be a trade war with Mexico.
Keep in mind that the country ranks as the third largest trading partner with the U.S., with imports of $346.5 billion in 2018.
In light of all this, a good approach is to look for stable, value-oriented stocks. And one that is an interesting choice is AT&T stock . Actually, the shares have had a pretty decent move this year, with the return at about 12%, but this could be just the beginning of the capital appreciation of AT&T.
A New AT&T
A big reason is that the company is undergoing a major transformation. Yes, this is all due to the $80 billion acquisition of Time-Warner. The result is that you are getting a vertically integrated content platform, from creation to distribution.
Here’s how AT&T CEO Randall Stephenson describes the vision in the shareholder letter:
“We’re doing this at a time when the technology, media and telecommunications sectors are in the midst of a new revolution, as consumers rapidly change how they engage with content. As a truly modern media company, AT&T is well-positioned to once again lead this next revolution.”
This is certainly a gutsy strategy. Let’s face it, the entertainment business can be volatile, fickle and expensive. It’s also important to note that rival Verizon (NYSE:VZ) has taken a different approach, with the focus primarily on the mobile business.
Yet I think being bold is crucial and should help with long-term growth for T stock. In today’s world, with fierce mega tech operators like Amazon.com (NASDAQ:AMZN), Facebook (NASDAQ:FB), Apple (NASDAQ:AAPL) and Alphabet (NASDAQ:GOOGL, NASDAQ:GOOGL) traditional companies need to rethink their playbooks.
As for AT&T, it helps that the company has a standout portfolio of assets. For example, WarnerMedia has a variety of movie franchises along with three of the top five ad-supported cable networks (for prime time for those between 18 to 49). In addition to TNT, TBS and Adult Swim they’ve acquired the hugely successful HBO franchise.
AT&T also 370 million direct-to-consumer relationships across mobile, pay-TV and broadband. All this should provide a solid platform for the streaming service that is expected to be launched later in the year. And as seen with Disney (NYSE:DIS), this could gin up excitement for T stock when we get more details about the service.
The Bottom Line on AT&T Stock
While the mobile business in the U.S. is fairly saturated, it is still a strong cash generator for AT&T. The addition of Time-Warner has also boosted the company’s bottom line. During the latest quarter, cash flow from operations came to a hefty $11.1 billion, up 24% on a year-over-year basis.
What’s more, the valuation on the stock is also at attractive levels. Consider that the forward price-to-earnings multiple is at a mere 9X. For the most part, expectations are tempered.
And finally, the dividend yield is at a juicy 6.6%, which is one of the highest among large-cap stocks. More importantly, the company has been a reliable payer. Note that it has increased the dividend for 35 consecutive years.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
