Should AT&T Be In Your Portfolio?

With shares of AT&T (NYSE:T) trading around $38, is T an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

AT&T  is a provider of telecommunications services in the United States and worldwide. The company offers services that include wireless communications, local exchange services and long-distance services. AT&T operates in four segments: Wireless, Wireline, Advertising Solutions and Other. As global economies continue to grow, telecommunications products and services become essential to consumers and businesses. Look for AT&T to profit from this growth as a leading provider of telecommunications.

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T = Technicals on the Stock Chart are Strong

AT&T has seen a long-term downtrend extending back to 1999. The stock is now trading at the upper end of this downtrend and a solid break could be very positive for the stock. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, AT&T is trading above its untangling key averages which signal neutral to bullish price action in the near-term.

T

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of AT&T options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

AT&T Options

17.09%

43%

40%

What does this mean? This means that investors or traders are buying a good amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

May Options

Flat

Average

June Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a good amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion…

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on AT&T’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for AT&T look like and more importantly, how did the markets like these numbers?

2012 Q4

2012 Q3

2012 Q2

2012 Q1

Earnings Growth (Y-O-Y)

42.86%

3.28%

10%

5.26%

Revenue Growth (Y-O-Y)

0.25%

-0.06%

0.25%

1.82%

Earnings Reaction

0.8%

-0.82%

-2.11%

3.62%

AT&T has seen increasing earnings and revenue growth rates over the last four quarters. From these figures, the markets have had mixed feelings about AT&T’s last four earnings announcements.

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P = Average Relative Performance Versus Peers and Sector

How has AT&T stock done relative to its peers, Verizon (NYSE:VZ), Sprint Nextel (NYSE:S), MetroPCS (NYSE:PCS), and sector?

AT&T

Verizon

Sprint Nextel

MetroPCS

Sector

Year-to-Date Return

8.86%

12.2%

8.2%

16.34%

7.64%

AT&T has been an average relative performer in a strong sector, year-to-date.

Conclusion

AT&T is an established company in the telecommunications space that is poised to grow along with the rest of the world. The stock has been part of a multi-year downtrend but is now trying to overtake it on increasing earnings and revenue. AT&T stock has been an average performer, year-to-date, relative to its peers and strong sector. Look for AT&T to continue to OUTPERFORM.

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