6. AT&T Inc. (NYSE:T)
Number of Hedge Fund Holders: 80
Jim Cramer highlighted AT&T Inc. (NYSE:T), the U.S. telecom provider, as one of the best performers of the S&P 500 this year. He noted its impressive year-to-date performance and the reasons behind its recent rise in popularity and impressive performance:
“Suddenly AT&T has been making a name for itself as a safe haven in a tough market and we don’t have many of those. When investors feel like the environment’s gotten really treacherous, they like to throw their money into something deemed safe. Telecom fits the safety criteria because it’s more insulated from the cyclical nature of the economy. Things have to get pretty darn bad before you stop paying your cell phone bill, don’t they? And also, because these companies tend to pay pretty good dividends.
So, what’s changed then to allow AT&T to become a winner this year? Well for starters this is no longer the old AT&T that we think about after spending years trying to diversify away from the phone business, which was ill-fated by the way, they finally decided to stick with what they knew best: phone business. Back in September AT&T told us they’re selling the rest of their stake in Direct TV – what a disaster that was – and that comes on top of the Warner Brothers spin-off a few years ago doesn’t hurt that the whole wireless business has gotten less competitive, and that’s allowing all three of the major carriers to steadily raise prices.
But the main reason AT&T stock got its mojo back is that management held an investor day in in December and they laid out a very clear road map with healthy growth expectations. It was a breath of fresh air for investors who might have bought this stock for years for the dividend but have seen those quarterly payouts cut.
At the end of January, they put an excellent quarter, good subscription numbers, strong free cash flow growth, and management raised their previous guidance that might seem like a low bar but in a negative market like this one, I think a little consistency goes a long way. But the most recent results indicate that AT&T has really turned the corner here.
So, here’s the bottom line here AT&T’s mainly roared this year as a higher yielding flight to safety trade, but there are also some company specific positives as the company’s gone a long way to turn itself around. At the very least, the stock’s no longer a value trap, which is why it’s been working this year and why I expect it to keep working as long as people are worried about the state of the economy.”
TCW Relative Value Large Cap Fund is positive on AT&T Inc. (NYSE:T) due to its strong management, successful restructuring, improved financial outlook, and commitment to sustainability. The fund stated the following in its Q3 2024 investor letter:
“AT&T Inc. (NYSE:T), based in Dallas, TX, is a nationwide provider of voice, video, and data communications services to businesses and consumers in the wired, wireless, and broadband. At initiation, the stock had a $141 billion market capitalization and met all five valuation factors with an above market dividend yield of 5.6%. From a sustainability prism, the company completed its commitment to invest $2 billion by the end of 2023 to help bridge the digital divide. AT&T is working on enabling low-income households to access to low-cost broadband services through its Access service plan as well as reaching out to more rural communities and Tribal lands where internet access remains a challenge. It is nearly 85% the way to providing one million people in need with digital resources through AT&T Connected Learning® with the goal to be reached by the end of 2025. In 2020, the company announced that it is committed to be carbon neutral by 2035 with zero carbon emission across all operations. It is deploying Smart Climate Solutions – through efforts like its Connected Climate Initiative – that will help enable its business customers to reduce their emissions as well. The company’s goal is to help collectively reduce its emissions by one billion metric tons – a gigaton – by 2035, compared to 2018 levels. The primary catalysts are new/strong management and restructuring. John Stankey was appointed CEO in July 2020 and he is committed to refocusing the company and improving its financial performance. The company combined its WarnerMedia operation with Discovery during 1Q:22 which eliminated AT&T’s exposure to the rapidly evolving media industry and refocused its core telecommunication business thus eliminating a major drag on profitability and the company’s balance sheet by reducing long-term debt from a peak $176 billion during 2020 to $142 billion at the end of June 2024 quarter. AT&T is moving aggressively to reduce cost and sell non-core assets such as its advertising platform Xander to Microsoft† which was accomplished during 2022. The company has redesigned its network to be software driven structure reducing the capital investment cycle in its national network – resulting in a network that is flexible with unrivaled speed and reliability – thus enhancing its nationwide position. By the end of 2023, it expanded its 5G network to reach more than 302 million people in nearly 24,500 cities and towns in the U.S. The company’s mid-band 5G+ network alone grew to cover more than 210 million people. AT&T is one of the largest investors in digital infrastructure in the U.S. Over the five years ending 2023, the company invested nearly $150 billion primarily in its wireless, fiber optics, and wireline networks. The extensive restructuring and refocusing of AT&T on its core business should result in improved earnings and cash flow while at the same time reducing uncertainty for shareholders.”
