The telecom stocks serve as a virtual clinic for this business. Each one -- AT&T (T), Verizon (VZ), Sprint (S) and T-Mobile (TMUS) -- has its own distinctive touches and quirks and set of opportunities as well as pitfalls. Unlike any other "group," it's truly up to the individual to assess her own suitability vs. the variables involved.
Let's go through them.
First, T-Mobile because it is top of mind, having just reported and because I just interviewed CEO John Legere at the Nasdaq, where T-Mobile just moved from the New York Stock Exchange.
Legere was his usual brash self, calling out AT&T and Verizon -- or vice versa -- as dumb and dumber, which I always thought meant that Sprint was Petey, the headless bird that still represents the most hilarious moment from that comedy classic.
I say "meant" Petey, because, oddly, Legere had good things to say about perennial underdog Sprint. More on that in a moment.
You have to ask yourself, with the stock down badly, was the brashness justified? I have to tell you that I think the stock's decline, not Legere's attitude, was unjustified because it wasn't a clean quarter, so to speak. Unlike AT&T, which beat and raised estimates, or Verizon, which beat on both the top and bottom lines, T-Mobile did nothing of the sort. It kept projections steady, which I think freaked out a lot of the traders who are so used to Legere bulling his stock up with a monster quarter.
But I am not a chaser of stocks and I don't like to buy anything on the run. Which brings me to the first part of the clinic. Here's a company that delivered another giant chunk of net adds, 2.312 million, that has now pretty much built out its network and is still taking share away from the rest of the industry. The decline in the stock comes from the convolution of some one-time charges and the desire of Legere to keep expectations in hand. However, you have to look at the leverage here. Once the big spend is over, and I would contend it's almost there geographically, then the numbers in 2016 could be very good indeed, which means this stock, up 46% for the year, could be terrific for the growth seekers out there.
How about the others? Verizon's growing adds more slowly but has gigantic cash flow and excellent coverage of its outsized dividend, which yields 4.9%. This is truly a cash flow story and a bond equivalent story and I like it very much as the stock's done nothing this year, down 1.42%.
How about AT&T? This one's tougher because its cash flow isn't as hefty vs. a dividend that gives you a 5.66% yield. Even though it raised its forecast, it's down 1% for the year, which I find curious. I like that it bought DirecTV for the cross-sell purposes, but Legere challenged me on that, saying there's got to be more to it before AT&T can win back share from T-Mobile. I tend to agree, but I love my DirecTV and I like the sales pitch that an employee is now giving, especially in an environment where you want out-of-market football games because of the national addiction to daily fantasy that forces you to watch all games to the very end. So a little extra yield and possibly more downside and more risk because of the DirecTV strategy. (AT&T is part of TheStreet's Dividend Stock Advisor portfolio.)
But if you really want risk, go for Sprint, which reports Nov. 3 and is up 19% for the year. I think the numbers will be good and, more important, if Google (GOOGL) or Comcast (CMCSA), one of my employers, or another firm gets in the game, I think you could see an acquisition of Sprint or T-Mobile, the former if the buildout is more complete because it is so expensive, and the latter if the stock doesn't go higher. T-Mobile with that growth could be a sitting duck. (Google is part of TheStreet's Action Alerts PLUS portfolio.)
So there you have it. There's the menu. Which one's for you? That's something I can't answer, but I can tell you it's a terrific way to judge your own tolerance and what you want out of a stock and your portfolio.