AT&T (NYSE: T) shares are trading higher today after an analyst at Bernstein upgraded the stock to "Outperform" from "Market Perform" citing the stocks current valuation. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on T.
After hitting a one-year high of $42.97 in September, the stock hit a one-year low of $32.95 in February. T opened this morning at $34.89. So far today the stock has hit a low of $34.87 and a high of $35.25. As of 12:30, T is trading at $35.10, up $0.83 (2.4%). The chart for T looks bearish and steady, while S&P gives the stock its highest 5 STARS (out of 5) strong buy rating.
For a bullish hedged play on this stock, I would consider an October bull-put credit spread below the $27.50 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 5.3% return in four months as long as T is above $27.50 at October expiration. AT&T would have to fall by more than 21% before we would start to lose money. Learn more about this type of trade here.
During the challenging market conditions over the past year, the telecom sector has felt its fair share of the pain. BusinessWeek brings Standard & Poor's Todd Rosenbluth who suggests that some of these telecommunication stocks could now be good investments for traders as they have a safe dividend.
Despite worries tied to the slowing U.S. economy and increased competition, "we think that some of the concerns are overdone and believe selective stocks are attractively valued," Rosenbluth stated. Rosenbluth also noted that telecom stocks have started showing signs of recovery for the past few weeks, helped by the launch of new handsets and merger and acquisition agreements.
Some of investors' favorite companies are AT&T Co. (NYSE: T) and Citizens Communications Co. (NYSE: CZN). Rosenbluth believes that the launch of Apple (NASDAQ: AAPL)'s new iPhone, 3G iPhone, will stir increased demand for smartphones, helping such companies, while putting pricing pressure on some of their competitors.
Apple Inc. (NASDAQ: AAPL)'s new 3G iPhone will hit store shelves on July 11 for a breakout new price of $199. Figuring that this new version is quite a bit more enhanced than the existing version -- but is going to sell for half the price -- who is losing out here? Nobody. It's Apple's way of hitting a new price point by agreeing not to take a monthly cut of revenue from every AT&T Inc. (NYSE: T) subscriber who uses the iPhone. Where's the cash flow part for Apple in the agreement then?
One theory is that AT&T is paying Apple $325 in cash for every 3G iPhone that will be sold soon. To help ward off phone unlockers and other potential miscreants, the new iPhone will have to be purchased and activated in an AT&T or Apple store, in person. This will probably eliminate almost all of the "buy here, use on another carrier" mentality that many non-AT&T folks would love to accomplish. It also preserves revenue for both companies by tight-fisting consumer control over where they use the device they just purchased.
Verizon Wireless, a joint venture of Vodafone Group Plc (NYSE: VOD) and Verizon Communications Inc (NYSE: VZ), is in talks to acquire Alltel Corp. in a deal valued at about $27B, the Wall Street Journal reported. If successful, the combined companies would create the largest cellphone company, and would be better positioned to compete against AT&T Inc (NYSE: T).
Gregory B. Penner, the son-in-law of Wal-Mart Stores Inc (NYSE: WMT) chairman S. Robson Walton, is expected to join the company's board of directors, a move seen as the beginning of a leadership change at the company, according to the Wall Street Journal.
The Financial Times reported that Singaporean sovereign wealth fund Temasek refused to provide funds to Bear Stearns shortly before Bear's sale to JPMorgan Chase & Co (NYSE: JPM). Temasek reportedly refused the request for practical and political reasons.
Russia's Interior Ministry questioned the head of BP Plc's (NYSE: BP) Russian oil venture as part of a criminal investigation into possible large-scale tax evasion, the Financial Times reported.
Qwest Communications (NYSE: Q), a company whose competitors include Verizon (NYSE: VZ), AT&T (NYSE: T) and Sprint Nextel (NYSE: S), issued its Q1 results on Tuesday, and they weren't inspiring to me at all. Revenues declined 1% to $3.4 billion. Net income took a dive to the tune of 25%, coming in at $0.09 per diluted share. Those are year-over-year declines -- the sequential-quarter comparisons also told a tale of decline. Adjusting the earnings for some tax considerations did, however, yield a net-income increase of almost 6%.
But then there's one of my favorite measures of growth -- free cash flow. Qwest didn't hit this metric. Free cash, on an adjusted basis, was $56 million this time around versus $156 million last time around (I give Qwest credit for increasing its operating cash flow, however). Qwest was able to carve out some double-digit gains in its broadband and video subscribers, but that seemed to be of little help right now.
Overall, I came away from the earnings report -- which told a complex story of adjustments, EBITDA, and such -- not wanting to add this stock to my watch list. According to Briefing.com, Qwest missed expectations by a penny, and its revenues failed to go beyond what Wall Street was looking for. Considering the low price of the shares, and the fact that the dividend yield isn't one I'd chase, I'll feel free to leave this one alone.
Disclosure: I do not own shares in any company mentioned here; positions can change at any time.
There are probably some hurdles to Deutsche Telekom (NYSE: DT), the German phone giant, buying Sprint (NYSE: S), but the deal does make sense for a number of reasons. Reuters writes that Der Spiegel, one of Germany's most prominent publications, reported that "Deutsche Telekom is looking at a possible purchase of U.S. wireless company Sprint Nextel."
DT has a very significant problem in the U.S., and it is one that the company cannot overcome on its own. The firm's U.S. wireless venture, T-Mobile, runs a distant fourth among carriers in the U.S. The two leaders, AT&T (NYSE: T) and Verizon Wireless seem to have the top spots cemented and are adding new customers every quarter. Sprint is in third place with about 50 million subscribers to over 60 million served by each of the two leaders.
Sprint has deep troubles of its own. It has run into subscriber retention issues since the NexTel merger. The company's financial position is weak. Its share price is under $8. Less than two years ago, it was almost $23. Sprint's plan to build a nationwide 4G network using WiMax is all but dead. The company simply does not have the financing to complete it.
T-Mobile has nearly 28 million subscribers. Combined with Sprint, it would take the lead in U.S. wireless customers with about 78 million. Integrating the wireless platforms of the two companies would be extremely difficult. But, the alternative is being the fourth horse in a three-horse race.
Douglas A. McIntyre is an editor at 247wallst.com and author of the Ten Stocks Under $10 letter.
Apple Inc. (NASDAQ: AAPL) shares are trading higher today as rumors swirled that partner AT&T (NYSE: T) will offer Apple's 3G, or next generation, iPhone for only $200, much cheaper than the retail cost of these phones. This discount would go straight onto Apple's bottom-line from the pockets of AT&T, who is hoping that these cheaper prices will lure more subscribers to their network. AAPL is also getting support from a Commerce Department report that GDP grew by 0.6 percent in the first quarter, ahead of the 0.5 percent growth expected by economists. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on AAPL.
After hitting a one-year low of $98.55 in May, the stock hit a one-year high of $202.96 in December. AAPL opened this morning at $176.19. So far today the stock has hit a low of $175.80 and a high of $180.00. As of 12:40, AAPL is trading at $177.45 up $2.40 (1.4%). The chart for AAPL looks bullish and steady, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bullish hedged play on this stock, I would consider a June bull-put credit spread below the $140 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 4.3% return in just seven weeks as long as AAPL is above $140 at June expiration. Apple would have to fall by more than 21% before we would start to lose money. Learn more about this type of trade here.
In the stock market, there are the indexes of consequence.
Certainly, the closely-watched Dow Jones Industrial Average is perhaps the world's best-known stock market index, as it serves as an indicator of both U.S. economic conditions, and the nation's economic prospects, 6-9 months ahead.
For those who are advocates of technical analysis, including yours truly, the DJIA's 50-day moving average and 200-day moving average, also are important, among other technical measures.
Yahoo! Inc (NASDAQ: YHOO) is going to let outside developers create applications across its network of sites, the New York Times contended. The search engine is also going to combine its online services under the social profile concept in an attempt to allow its users to replicate the social experience that social networks like News Corporation's (NYSE: NWS) MySpace and Facebook have made so popular.
WEB SITES:
Research In Motion Limited (NASDAQ: RIMM) will reportedly delay the launch of its new hotly anticipated 3G BlackBerry phone, Fortune reported, which the company is developing for AT&T Inc (NYSE: T). The phone, originally supposed to be launched in June, may not be released until as late as August, inside sources said.
The Wall Street Journal reported that Ford Motor Company (NYSE: F) CEO Alan Mulally isn't done cost-cutting. According to people close to the situation, Mulally is considering more job cuts, selling its Volvo brand and closing the troubled Mercury brand.
BHP Billiton Limited (NYSE: BHP) CEO Marius Kloppers strongly criticized Rio Tinto Plc (NYSE: RTP) and its CEO yesterday, the Financial Times reported. BHP Billiton has outperformed Rio Tinto in several areas, including share price appreciation and EPS growth, said Kloppers, adding, "On every metric I can envisage they [Rio] have been beaten."
OTHER PAPERS:
According to the Economic Times, AT&T Inc (NYSE: T) is reportedly in preliminary talks with Malaysia's Maxis Communications about buying its 74% stake in Indian cellular phone company Aircel, sources said.
The United Auto Workers union has rejected several "generous" benefit and wage proposals, according to American Axle & Manufacturing Holdings Inc (NYSE: AXL). In a statement yesterday, the Detroit News reported that American Axle said while tentative agreements had been reached on several issues, the UAW "repeatedly rejected" other proposals that were "considerably higher than the market rate."
AT&T said it will cut about 4,600 jobs, or roughly 1.5% of its work force, as it integrates several businesses and streamlines operations, The Associated Press reported Friday.
AT&T (NYSE: T) also said it plans to take a $374 million first quarter, pre-tax charge in connection with the job cuts, The AP reported. The company added that, longer-term, the jobs cuts will be offset by staff additions as it invests in growth areas. The company had about 309,000 employees as of December 2007.
Shares of AT&T rose 31 cents to $37.88 in mid-day Friday trading on the news.
AT&T, which posted Q4 2007 EPS of 71 cents, in-line with the Reuters Q4 2007 consensus estimate, has made several acquisitions in recent years, including SBC Communications and BellSouth, as part of its business model revision for the digital age.
While bank stocks aren't exactly hot, they triggered yesterday's rally because when J.P. Morgan Chase & Co (NYSE: JPM) and Wells Fargo & Company (NYSE: WFC) reported, there were no unexpected surprises, according to the Wall Street Journal's "Heard on the Street". The ups and downs in the sector are expected to continue.
According to people familiar with the matter, the Wall Street Journal reported that Yahoo! Inc (NASDAQ: YHOO) may be moving closer to outsourcing its search advertising to Google Inc (NASDAQ: GOOG) after an initial test yielded what they considered to be positive results.
OTHER PAPERS:
The New York Times reported that AT&T Inc (NYSE: T) is planning today to make an announcement that they will gift $100M to improve the skills of the nation's work force and fight the problem of high school dropouts.
WEB SITES:
Celgene Corporation (NASDAQ: CELG) is best known for its blockbuster drug Revlimid which is used treat multiple myeloma, a cancer which attacks blood and bones. For patients, it can prolong their lives about 2.9 years, or longer, according to Investor's Business Daily's "The New America".
Awhile back, amid the subprime default fall-out, more-somber outlook for the U.S. economy and hence, the markets, yours truly suggested that investors increase the number of defensive stocks in their portfolios. In doing so I drew on a lesson offered by my late Uncle Nick, a lifelong New York Giants fan and season ticket holder. The wisdom:
In tough times, think established companies. Something, as my Uncle Nick would say, "As strong as the New York Giants' defensive front four." And I added that in case one hadn't noticed lately, the defensive front four of the Giants, also the favorite football team of yours truly, is still pretty good.
(My late Uncle Nick, of course, based his advise on the Giants' longstanding tradition of building a strong defense first, because, according to many revered football head coaches, Vince Lombardi and Bill Parcells among them, defense wins championships.)
AT&T (NYSE: T) shares are trading higher today after an analyst at Bernstein upgraded the stock to "Outperform" from "Market Perform" citing the stocks current valuation. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on T.
During the challenging market conditions over the past year, the telecom sector has felt its fair share of the pain. 
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Qwest Communications
Here are some highlights from this past week's 
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Awhile back, amid the subprime default fall-out, more-somber outlook for the U.S. economy and hence, the markets, yours truly suggested that investors increase the number of 
Earnings preview for Ford
Apple shares rise on report Steve Jobs is free of cancer
Toyota whups GM in the first half of 2008
