In the latest episode of the Motley Fool Money podcast, analysts discuss various market trends and specific stocks, including AT&T. Host Ricky Mulvey and analyst Asit Sharma delve into topics such as stress in the commercial real estate market, Delta’s financial quarter, and Tesla’s recent surge in stock price.
The conversation also includes an audio-only segment called “Scoreboard” from the Motley Fool Live, where hosts Anand Chokkavelu, Lou Whiteman, and Rick Munarriz analyze AT&T’s performance. This in-depth discussion provides insights into the company’s financial health and potential growth opportunities.
The podcast also touches on macroeconomic factors, such as inflation data and Jerome Powell’s comments on commercial real estate risks. With nearly a trillion dollars of commercial real estate debt maturing this year in the US, and a significant increase in delinquency rates for mortgage-backed securities tied to offices, the market faces challenges. Smaller banks with high exposure to commercial real estate, like Valley Bank, may be particularly vulnerable.
As the market shifts and opportunities arise in distressed commercial real estate, investors like Howard Marks’s Oaktree are on the lookout for bargains. With potential for bottom fishing in this sector, savvy investors may find value in acquiring assets at discounted prices.
Overall, the podcast provides valuable insights into market trends and specific stocks, offering listeners a comprehensive view of the current investment landscape. I am surprised by this as well. Tesla’s stock surging over 50% in just one month despite their delivery numbers being down from the previous year is unexpected. It shows the power of investor sentiment and the belief in Tesla’s future potential. It will be interesting to see how this trend continues in the coming months. I initially believed that a certain stock was being oversold, but it turns out that the entire industry is currently experiencing significant changes. There are a lot of challenges ahead that I didn’t anticipate. This indicates that perhaps people were overly shorting this company and overlooking the fact that the true demand structure will unfold over a longer period of time. Tesla has more to offer than just vehicles, with its energy business looking promising. It was a bit of a surprise, but we’ll see how things play out.
On a different note, Google has decided to halt its attempt to acquire HubSpot, causing the stock for HubSpot to drop by about 14% in just five days. This move comes as no surprise to me. HubSpot is a reputable company that has made a name for itself in inbound marketing, but with the rise of generative AI, its future is now uncertain. Investors may have been hoping for a different outcome, given the potential benefits of the merger.
Switching gears, a private company called Athletic Brewing has seen its valuation double in the past two years, reaching $800 million in its latest funding round. This non-alcoholic brewer has managed to become the top player in its field, surpassing industry giants like Constellation Brands and Anheuser-Busch. This success can be attributed to its focus on taste and unique marketing strategies targeting active individuals.
The beverage industry is currently experiencing a resurgence of small brands like Athletic Brewing, Olipop, and Liquid Death, which have gained significant market share. This trend highlights the opportunities available to companies with innovative ideas, strong branding, and appealing products.
Looking ahead, a live show featuring Motley Fool Money will take place at the Ritz-Carlton, where a CEO draft will be conducted to select executives who can outperform the market in various categories. The focus will be on lesser-known CEOs to bring a competitive edge to the game.
In another segment, AT&T is discussed as a promising investment opportunity, with the potential for growth due to the ongoing 5G revolution. The company’s focus on its core strengths and a generous dividend yield make it an attractive option for patient investors.
Overall, the financial landscape is evolving rapidly, presenting both challenges and opportunities for investors to navigate. By staying informed and adapting to changing trends, individuals can make informed decisions to secure their financial future. The bear case for AT&T is that its substantial size can be problematic, even in good times, and devastating in bad times. Despite the hype surrounding the 5G revolution, it hasn’t yielded the revenue growth that was expected. There is a sense of waiting for that growth to happen, but there is uncertainty if it ever will.
Anand Chokkavelu and Lou Whiteman discussed AT&T’s position in the industry, with Lou giving a rating of five out of ten for the company’s competitive advantage. He highlighted the challenges of being an incumbent in a rapidly evolving landscape with disruptive technologies. Rick Munarriz rated AT&T a seven, acknowledging the storm clouds but also recognizing the company’s resilience and market presence.
When it comes to management, Lou rated CEO John Stankey a four, acknowledging his efforts to address past mistakes but also noting the challenges ahead. Rick gave Stankey a six, citing improvements in the company’s performance under his leadership.
On the financial side, both Lou and Rick rated AT&T a five, noting the significant debt the company carries but also highlighting its solid operating cash flow and dividend yield.
In terms of valuation, Rick predicted a 5-10% return on AT&T stock over the next five years, indicating a cautious outlook on the company’s performance. I believe that AT&T may not be a monster growth stock, but with its narrowed focus on what it does well, I anticipate that its dividends will start growing annually again. The current yield of 6.5% is a significant factor in the 5-10% expected gain, especially when compared to a 5% money market yield that is likely to decrease as interest rates rise. Therefore, I feel comfortable holding AT&T in my portfolio.
Rick Munarriz also emphasizes the importance of AT&T’s dividend yield in achieving total return, noting that the stock has lost value over the past decade. While he acknowledges the risks associated with the company, he believes that AT&T’s resilience in the face of various challenges makes it a relatively safe investment choice. He compares the stock to Verizon, highlighting the appeal of their consistent dividends to income investors.
On the other hand, Lou Whiteman expresses concern about AT&T’s ability to navigate the competitive landscape without the advantage of its previous monopoly status. He believes that the company’s debt load is manageable but warns that competition poses a significant risk to its future performance. He suggests that investors may need to adjust their expectations for the stock and consider the possibility of minimal growth.
In terms of strategy, Rick Munarriz suggests that AT&T should focus on enhancing subscriber rewards and engagement, similar to T-Mobile’s approach. He believes that offering unique deals and promotions can improve customer retention and brand loyalty in an industry where dissatisfaction with wireless providers is common. Lou Whiteman advises AT&T to improve its cross-selling efforts and adopt modern marketing techniques to attract and retain customers effectively.
When asked about his preferred company in the telecom space, Rick Munarriz mentions Crown Castle as a potential alternative to AT&T and Verizon. As the country’s second-largest provider of telecom towers, Crown Castle benefits from wireless carriers paying to use its infrastructure for expanding their coverage. This diversification may offer investors a different avenue for exposure to the telecom industry. Crown Castle offers a 6.5% yield, which is similar to what AT&T and Verizon provide. However, Crown Castle does not have the same risks associated with lead sheath cables or the need to give away iPhones to attract new customers. While Crown Castle has its own set of challenges, it does not have to navigate the competitive market climate that wireless carriers face.
Lou Whiteman prefers Alphabet over telecom companies like AT&T and Verizon. He mentions that Google Fi, Alphabet’s cellphone carrier, offers fiber and TV services similar to traditional telecom companies. Whiteman suggests considering investing in Alphabet instead of telecom companies.
Ricky Mulvey reminds listeners to be cautious when making investment decisions based on information heard on the program. He advises against buying or selling stocks solely based on discussions on the show. Thank you for tuning in, and the team will be back with more insights tomorrow.