I’m going to keep it real: I’m not the biggest fan of AT&T (NYSE:T). When this crisis is over, I’m looking to make the switch to Comcast (NASDAQ:CMCSA). Indeed, circumstances might push me to make the switch during quarantine if possible. Nevertheless, I own AT&T stock.
Is that a contradiction? In my opinion, no. Prior to the coronavirus from China changing everything, I understood that telecommunications powerhouses like AT&T and Verizon (NYSE:VZ) owned both the capacity and competency to roll out 5G services. Additionally, these organizations are too important to fail. Therefore, I felt that AT&T stock was a great buy on the dips.
Of course, shares have dipped considerably over the last few weeks. However, I’m in no rush to say that this is the time to buy. Sure, AT&T stock jumped over 7% on the Monday, April 6 session. However, too many uncertainties exist in the broader economy for investors to have confidence in almost any sector.
Primarily, I’m worried about the record-breaking job losses. In the first week since the coronavirus took a significant toll on domestic companies, 3.3 million people filed for unemployment benefits. A week later, that figure soared to 6.6 million. Over the next few weeks, we’ll probably witness unprecedented devastation.
Bluntly, the “new” AT&T is not designed to handle such dilemmas. As MoffettNathanson analyst Craig Moffett argued, the company’s massive debt load due to substantial non-telecom related acquisitions have left AT&T more exposed to cyclical shifts.
That’s unlike rival Verizon, which more or less maintains a defensive posture despite the pandemic. Glaringly, VZ shares have outpaced T stock by a country mile. Is AT&T salvageable here?
A Credible but Tough Road Ahead for AT&T Stock
I’m going to be real again: when I supported the bullish case for T stock last year, I did so without even thinking about a pandemic. Given these unprecedented times, does that change how I feel about the stock?
Frankly, I don’t know how it couldn’t.
When you have massive bread lines forming in the shadow of Mar-a-Lago, this tells you that anything is possible. And the probabilities suggest that whatever is possible will likely be negative. Therefore, if you want a stable, defensive name, you’re better off with Verizon. Even then, it’s still a risk.
But that’s not to say that AT&T stock is completely without merit. Due to most states imposing shelter-in-place orders, Americans by and large have nothing to do. Therefore, it’s an opportunity for the underlying company to market its vast entertainment portfolio.
Coincidentally, AT&T-owned WarnerMedia has a new CEO, Jason Kilar. As an entertainment industry expert, Kilar has a track record of success launching digital streaming products, most notably with Hulu. When he stated that WarnerMedia brand HBO Max is the service “the world needs right now,” it’s a credible statement.
With movie theaters in the U.S. shut down, Hollywood finds itself in limbo. Initially, that doesn’t appear to bode well for AT&T stock. However, HBO has a history of making compelling content for the small screen; think “Game of Thrones.” Since American families’ entertainment budgets are now forcibly exclusive toward personal and digital channels, this may represent a surprising boost for the beleaguered telecom giant.
As well, AT&T has the chance to take some market share in the content-streaming arena. Although attacking Netflix (NASDAQ:NFLX) may be a challenge, I can see AT&T putting up a fight against Disney (NYSE:DIS) due to their largely family-friendly (read boring) content.
Buy Now with the Expectation of More Pain
If you’re okay with the volatility and the pronounced vulnerability of AT&T stock to recessionary pressures, you may want to consider a small position today. If you do so, keep the powder keg dry. In no way do I consider the current discount to be the bottom.
At the same time, I’m reminded of the geopolitical nature of this pandemic. Despite American companies selling us out to overseas interests for years – and that includes AT&T, unfortunately – the bottom line is that our leaders will hold China to account for its role in suppressing critical information about the coronavirus.
Further, I believe that unless the Democrats make a wild switch-a-roo, President Donald Trump will have his second term. Sadly, former Vice President Joe Biden is too incoherent to mount a credible challenge to “The Donald.”
In this case, we need our next-generation technology firms operating at full capacity. Like it or not, that involves saving companies like AT&T, should it come to that.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he is long AT&T stock.