Some investors seek opportunities based on future potential. Others invest in good ongoing stories. AT&T (NYSE:T) stock is lacking on both fronts, so it’s not a surprise to see it struggle for years.
These sound like harsh statements but they merely reflect reality. They say that price is truth and in this case, the stock chart supports this bearish notion. It could make for a fine long-term bet for optimists and extra-patient investors. I say there are hundreds of better opportunities elsewhere.
T stock has been in a descending channel for over five years. It swings wildly between extreme optimism and big letdowns within it. This shouldn’t happen to a mature company such as this. Recently the stock fell 15% on dividend worries. Losing that carrot could severely impact demand for it. In this low rates environment, fixed income from dividends is very important.
Two years ago, I used to write positively about upside opportunities in T stock. Back then things were different as it was coming out of the December 2018 crash. Now I fail to see the excitement over its future mostly because of bad management moves.
In 2019, the upside potential came to fruition after a 25% rally. Unfortunately, the fall from grace that started with the pandemic was too violent.
The virus crisis crippled the world and the entire stock market crashed. The indices recovered relatively quickly by the summer. AT&T, on the other hand, failed in early June and retested the pandemic lows. Since then it’s been violently going back and forth but still mired closer to its five-year range.
Only Management Can Save T stock
Management is trying to make strategic moves and headlines of late. First the dividend threat, and also the announcement to spin off Warner. This was a quick turn of events because the Warner deal is still fresh. They even fought the government to make it happen. Now they are spinning it out into the fringe already. Only time will tell if this is a move to refocus AT&T back into its telecom core competency. Or what I think is panic over buyer’s remorse to a bad decision.
Either case, I think the company is finding it hard to adapt. Media consumption completely changed largely thanks to what Netflix (NASDAQ:NFLX) did in the past FIVE years. Cord cutting is no longer a fad but rather the global trend. Media and communication giants like AT&T needed to adapt quickly, but this one seems to be on its back foot. I have used their services in cell service, cable and landline. I hated each one for different reasons.
My personal experience as a client spills into my opinion of the T stock. The carrot from a high-dividend payout is tempting. However, there are better stocks to deliver that. I simply don’t trust the company behind it. I don’t mind trading the stock short term based on charts, but it wouldn’t be my long-term investment pick.
Define the Mission to Attract Investors
General Electric (NYSE:GE) went through a similar situation a few years ago. It took them several changes at the c-suite before fixing it. The repair efforts are still ongoing there but at least they have a plan and baseline from which to spring. AT&T is not there yet and they’re still in the panic mode. Onus is on them to define their long-term goals first. Also, it would help if they share an action plan or path to get there.
T-stock consequently being this low and having lost this much so quickly raises doubts. It is too close to a potential technical catalyst. If bears can break below $28.50, they can accelerate the selling to retest the pandemic lows. This is all to say that the bottom is not yet clear. This morning the indices are trying to make new highs, and this highlights T’s lag. It also adds extrinsic risk from the overall market’s altitude.
Even if the opportunity in AT&T stock is great, it has to work within the market as a whole. The slightest of corrections in the indices will bring down all stocks, including this one, regardless of their individual opportunity. The most blatant way to say it is that there are better fish in the sea of stocks. For dividends stocks, I would prefer Chevron (NYSE:CVX) or Exxon (NYSE:XOM). Both management have focused missions and vowed to defend the payout at all costs. From a growth perspective, I would rather allocate risk into Disney (NYSE:DIS), Netflix or even Fubo (NYSE:FUBO).
The T stock story isn’t pretty, and the experts don’t disagree. Wall Street analysts who cover it are in a hold pattern. Moreover, their average price target is about where the stock is now.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Nicolas Chahine is the managing director of SellSpreads.com.