Tuesday, July 24, 2007

Why AT&T Stock Could Be Up Substantially by Year End

Those that have been reading my articles for a while know that I don't make specific stock recommendations, but I do come up with stock ideas worth further investigation. The last time [and only time] I’ve ever come up with a long list of ‘Why It Could Be Higher’ reasons for a stock was when I wrote about Amazon.com (AMZN) back on March 8, 2007, when the stock was trading at 38.10 per share. Today the stock went from a close of 69.25 to 84.09 in the after-market, an increase of over 21% in one afternoon. Obviously, past performance is no guarantee of future stocks that I write about.

I have come across a stock which I believe will be substantially higher by year end. That stock is AT&T Inc. (T), which closed at 39.68 today. What is interesting is that the ‘old’ AT&T was considered a “widows and orphans” stock, which meant that it could be sold to little old ladies without having to worry about the company going out of business. It was in the same class as utilities, paying a steady dividend. The ‘new’ AT&T is actually the old SBC Communications, which came about from the break-up of the old AT&T in 1983, and which took over its former parent company, American Telephone & Telegraph. I still think AT&T is a safe stock, but I also think it has lots of growth potential.

Here are some positive features about this stock:

1. Their earnings increased by 61% in the second-quarter of 2007, with virtually no reflection of iPhone sign ups.
2. They have a captive market with all purchasers of iPhones. If you own an iPhone, you have to connect with AT&T.
3. iPhone buyers will be ‘locked in’ to AT&T for two years.
4. Revenues from their wireless data division increased by 67% for the quarter.
5. Their U-verse television service increased subscribers by 292%, second quarter over first quarter.
6. They anticipate 40,000 U-verse installations per month by the end of 2007.
7. Cost savings from the integration of BellSouth are increasing substantially.
8. The price to earnings ratio is 20.34, lower than Quest (Q), Sprint (S), and Verizon (VZ).
9. The price earnings to growth ratio is 1.95, less than Sprint (S), and Verizon (VZ).
10. The company generates net earnings of $29,000 per employee, more than Quest (Q), Sprint (S), and Verizon (VZ).
11. The stock pays a yield of 3.5%.
12. The company has paid dividends quarterly for over 20 years.

Author owns AT&T. Picture is courtesy of the Library of Congress.

By Fred Fuld at Stockerblog.com.

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