-=Trader Wizard Ezine - October 10, 2004=-



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BUY or SELL Recommendation on AT&T
	AT&T Company (NYSE: T) Oct-08 close: $15.18 RECOMMENDATION: ACCUMULATE Strategy: Write T=PC April 2005 Puts Strike@15 Price to be calculated at the market close October 8 (T=PC Apr-05 close @ $1.35) OneChicago Single Stock Futures (T1C): T1C Z4 (Dec 04) $15.24 Among general reading, here is material I used to make this decision: EasyStock Interactive charts: Monthly, Weekly, Daily, Hourly, 30-Minute and the Reuters data at Yahoo Finance.

The case for accumulating (the stock):
	1. EBITDA (ttm) is 7.06B, and Free Cash Flow (ttm) is $4.09B, which is surpassed by few Dow 30 companies. In fact, T trades at just 2.95x Free Cash Flow, while SBC is at 12.50x and VZ is at 12.54x. Cash flow is a key here. 2. PE (ttm) is 9.95, which is well below competitors like VZ (34.2) and SBC (17.0). 3. Technical indicators on Monthly data (RSI, STO and MACD) have all bottomed and are now rising. 4. Short % of Float (2.96%) for T is three times higher than VZ (0.97%) and SBC (1.02%), which further supports my contrarian view. 5. Consensus Wall Street analyst opinion is 3.7 out of 5, which is a hold/sell view, and supports my contrarian opinion. 6. Analysts seem to be missing the picture that AT&T is being re-positioned as a pure VoIP play, which is the most exciting thing going on today in the telecommunications sector. Other pure VoIP plays (Vonage and Skype) are far too small to challenge AT&T, with its $20+B in annual revenue and $2+B in capex. Besides, AT&T still owns Bell Labs. 7. To challenge the VoIP market, T is not burdened by a traditional infrastructure and business model of its main competitors, VZ and SBC. It does however already have the IP backbone plus the huge corporate customer base in place to get it started plus it has instant name recognition with 30 million retail customers, which will help give it instant brand recognition for its new VoIP offerings.

The case against accumulating (the stock):
	1. The Forward PE is 27.6 because the company has been selling off ill-fitting operations and still taking charges against income. Sentiment of investors, analysts and media will continue to be weak during this period of corporate re-structuring.

Trader Wizard's expectation for this trade:
	1. The T=PC puts are likely to be exercised, so I do not expect to earn the $1.35 premium. I want the opportunity to accumulate the stock at $13.65, down 10% from today’s price of $15.18. Should I see a downward price spike in the stock, I will switch my recommendation to a BUY, and will recommend purchase of calls at that time.

Trader Wizard Profit & Loss:
	The ‘Trader Wizard buy or sell’ Ezine will soon present a calculation of P&L for individual trades and for all trades (both open and closed) for the prior 12 months.

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