Thursday, November 2, 2017

Quick Update On T

Since my last blog post on T here, the stock has further declined a bit while I've been dollar cost averaging.

At this point, I've maxed out my T allocation with a bit overweight at 6.16% of Portfolio Value. I normally like to keep allocation of blue chip companies around 5%. So, T has been an exception for me.

I thought, it might be helpful for my readers who may still be contemplating on whether to buy or wait on purchasing T, if I share updated valuation charts:

T downside price estimate

This is a 10 year chart with 8 years of historic and 2 years of forward/estimated data. The pink line represents bottom historical valuation or multiple, while the orange line represents fair-value multiple. The black line represents the stock price movement, while the green area represents earnings.

The pink line or the bottom price support is based on the lowest valuation (P/E) reached in 2010. In the past eight years, T has never traded at such a low valuation or P/E multiple.

At yesterday's stock price, T is still about 4.3% above the 2010 valuation (bottom support line) with the current yield of nearly 6%. This is an incredible deal on a blue chip and iconic company; however, high yield always comes with some risk.

Even though, most of the bad news from the earnings report is already baked into the price, there is ongoing risk or pressure due to TWX merger. I believe the merger will go through, but not without some comprise from T with regards to what DOJ wants.

I still feel that at the current price, there is way more upside (~32%) than the downside (~4.3%).

T upside potential
If you are not already too overweight in T, you can always buy a little using a dollar-cost-average approach or even wait for the merger to settle before buying more shares. Just do what makes you comfortable with your T allocation and overall portfolio risk profile.

Thanks for reading and hope this helps a bit.

Disclosure: I am long T and VZ.

Disclaimer: Author of this article is not a licensed/registered financial or investment adviser and does not provide investment advice. Any mention of stock names/tickers in this article or website is not a recommendation to buy or sell. Please do your own due diligence before buying any stocks. This article is for informational and entertainment purposes only. Full disclaimer can be read here: Full Disclaimer


12 comments:

  1. I ended up buying some more AT&T after your analysis in October, and now also have about 6% of my portfolio in T. I do like the dividend yield and the current P/E multiple.

    Thanks for your analysis and this update :)

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  2. This post comes at a perfect time. I have been watching T go lower and lower recently. This is the lowest I have seen it since about 2015 when I bought it. I can finally lower my cost basis. Smart to buy when there is uncertainty about the merger since the price is usually lower. As long as everything with the company stays consistent of course. Hope to pick some up soon in the coming days. Thanks for sharing.

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    Replies
    1. Yes, averaging cost down is a great way to buy these mega blue chip stocks; however, remember to not over do it.

      I like to average down to a certain point, and then I wait and wait for a turnaround before averaging up. In words, you don't want to ave down into a huge loss.

      As of now, since I already bought some during the recent decline, I'll wait for it to either bounce off $32 (long-term support) or start moving up before buying more.

      Good luck to us all and take care.

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  3. I'm going to have to take a second look. It really pays to have money on the sideline for when opportunities like the shows up. T is one of my favorite stocks right now. Can't hurt owning a few more shares, especially since I think it's a strong company to own for the long haul.

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    Replies
    1. Yes, that's why I'm always in a lookout for raising some cash by liquidating non-performing or troubled stocks. We all make mistakes during investing and no matter how carefully I am, there is always a few stocks that I could eliminate or trim from my portfolio to manage risk while raising some cash.

      Take care and happy investing!

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  4. Thanks for the update Mr ATM. I have picked up a few shares here and there on the decline. Still a great company with a hefty cash flow. The dividend appears safe.

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    Replies
    1. Sounds great DS!

      Yes, T is one of those stocks that I would never want to sell and always lookout for more. I can't remember, the last time I saw someone not glued to their smartphones. Long T, VZ, and AAPL.

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  5. Are you concerned about their debt levels and decreasing revenue from DirectTV?

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    Replies
    1. Not too worried about their debt levels as they are in a capital intensive industry, and I believe they are better positioned than their competitors to service that debt with their massive cash flow generation capability and high BBB+ quality balance sheet.

      In addition, the new TWX acquisition will provide additional FCF which can be used to pay down some of the debt.

      As for the satellite DirectTV business, it is a legacy business and will continue to phase out over time, while giving way to new lines of revenues such as OTT (overt-the-top) service via "DirectTV Now" combined with premium content from TWX acquisition.

      Combine that with their massive wireless infrastructure/business and 5G (IoT boom), I can't think of another company, other than maybe VZ, that can compete with T.

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