Nothing is worse than repeating past mistakes. Despite the awful economy, my newest portfolio is doing better than any other since 1999-2000, actually passing a 100% gain recently, although it has dropped back slightly with the market the past few trading days.Ten years is recent enough for me to remember giving everything back and then some. I'm not doing that again. But what to do? I certainly do not like sitting with a heavy cash position collecting almost nothing. I have recently discussed this issue, see: Serious Money: ETF that's better than cash.
The solution is to find stocks that have low volatility, high yields, and the recurring revenue and strong cash flow to maintain the yield. Long term investors will not be surprised by my search leading me to AT and T (NYSE: T) and Verizon Communications (NYSE: VZ), the two largest communications companies in the land.
AT&T is sporting a 6.59% yield and a beta of 0.64, while Verizon offers a 6.15% yield complimented by a 0.59 beta. Both stocks have low trailing P/E ratios at 13 and 11 with forward looking numbers even lower.
Today Barclays downgraded AT&T to 'Equal Weight' from 'Overweight' and lowered it's price target from $32 to $28. If I was looking for a stock that might return higher appreciation than these telecoms, I might look elsewhere, and I have. However, I am not comparing these two companies to other stocks, I am comparing them to cash or bonds and would be happy to see AT&T go from today's price near $24 per share to $28, almost a 17% gain plus a wonderful dividend gets you to 23%.
It seems to me a little misguided for Barclays to snub their noses at a 23% return in a low inflation and low yielding environment. Especially when the target of their negativity has a 100-year track record. Verizon closed yesterday $29.73.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I have open orders for AT&T.
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