Feature: Finally Time for Telecom - Ride the Wireless Wave.

Both companies, especially VZ, look like decent accumulations at these levels.

I will mercifully refrain from a detailed description of the sector or Verizon and AT&T’s businesses as, frankly, if you’ve never heard of these two behemoths and don’t know what they do, you should probably stop reading right here.

Here are the links for the earnings releases. Saves both of us some time. Verizon and AT&T earnings summary: http://biz.yahoo.com/rb/060126/telecoms_earnings_wrap.html?.v=1  

And did I mention that both tend to pay out very nice dividends? 

Verizon Bottoming…Shares (or options) should be accumulated.

Our technical work shows a change of direction for the shares from the previous decline. For those who like the tech jargon, the recent trading activity shows the ultimate double repo using the 3x3 Displaced Moving Average (DMA). We’re calling for bottoming to occur in VZ shares—it may well have occurred already-- and for aggressive traders or long-term investors, the time appears ripe to get on board, in our opinion. Stop loss a VZ trade at $31.

VZ has 51 million cell phone subscribers, just a scant three million shy of leader Cingular, of which AT&T owns 60 percent. BellSouth (NYSE: BLS) owns the balance. Kind of an oligopoly, as the three pretty much dominate this rapidly growing market.

Aggressive short-term traders could utilize options. The VZ 06 April 32.50 calls look nifty if you can get them under $1. For those with a longer horizon, the 07 Jan 30 calls at $3.50 look a fair deal. And remember, options are for aggressive traders wishing to participate in a rise if we’re correct and can go to zero if they don’t work out. They need to be watched, traded and profits taken. These aren’t the province of buy and hold investors. Two words you never want to see in the same sentence regarding your option purchase: “expired worthless”.

For those who like to search out lower risk vehicles, the Dow Jones US Telecom iShare (AMEX: IYZ) might be an alternative as just about 40 percent of the holdings of this ETF are made up of VZ and T. 

The performance over the last year has been, well, lousy—down 2.5 percent--but if our call is correct, that could well be the lower risk way to go. Trade volumes are OK, but relatively low compared to popular ETF’s in other sectors. The technical picture looks similar to the VZ chart, so there may be some decent juice coming in the price.

Yes, gentle reader, the IYZ is also optionable but the trade volumes are spotty and we don’t like suggesting options where the lack of liquidity can work against you instead of keeping markets fair. Who wants to be the only trade in the mix? Here’s the link in any case: http://finance.yahoo.com/q/op?s=IYZ. Scroll across the top for expiry months.

Pretty much the same story with what used to be SBC and is now all things AT&T again. Recent earnings were snappy to say the least and it looks like the new entity is hitting on all eight cylinders. Long-term investors and those interested in dividend/growth-oriented situations should be especially keen on the new AT&T.

Pretty simply, the recent trading action denoted that the shares should have backed up after the 5/8 retracement, but instead pulled back only slightly and scooted past the resistance level with reasonable ease. Chart looks very constructive and while perhaps not as nifty a picture as VZ, the shares look likely to move higher. Establish a stop loss for T at $24.60

Everyone either hates telecom or has been waiting for it to move. We like it when that happens. There has likely been some reasonably large accumulations as these giants came off there bottoms and/or declines and timing still looks reasonable for those who want to be early along with the smart money.

Our options pick would be the T April 25 06 calls. They quickly moved to $1.30, Friday, and could back up a bit if the stock consolidates Monday. I’d really be interested in them closer to $1 a contract. The link is here. Scroll across the top for expiry months: http://finance.yahoo.com/q/op?s=T&m=2006-04. 

While we are convinced the sector has legs, the timing is the trick shot; could already be underway, might get moving soon or we could be a bit of time away. Imagine the truth is somewhere between already and soon.

Finally, earnings projections for 2006 for VZ and T are $2.56 and $1.91 respectively. That throws off p/e’s—again respectively—of 12.5 and 13.5 times—pretty compelling. I would surmise that continued momentum in the broadband and wireless businesses could well force the multiples and share prices higher based on the rapid and ongoing growth of the broadband and wireless sectors.

Need more evidence? My 22-year old son doesn’t even have a landline phone in his apartment. Seems wrong, somehow.
 
 

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