AT&T (T) started a turn up but I believe the pessimistic earnings season will keep the stock from really moving much farther in early 2013. It did have a good fourth quarter but I am not sure if that will be enough to lift the stock out of the beginning of a trading channel.
Will smartphone sales lift the company's stock? AT&T set a new record for sales for the fourth quarter that was previously set in 2011 when the company sold 9.4 million smartphones. This quarter it sold 10 million. Is this something that can be attributed to the company's popularity? I do not think so. Not only is the use of smartphones growing but Verizon (VZ) also had a record quarter, so I do not believe it is something investors can read into. It may be nothing more than the positive growth of the smartphone industry.
AT&T's new service "Screen Pack" was to create new competition for Netflix (NFLX) as it promised unlimited streaming for movies on tablets and other devices for a mere $5 per month. This would allow clients to access some new movies 30 days earlier than they would be available on Netflix. Presently, Netflix has over 25 million $8.00 subscribers while AT&T has just over 4 million "U-verse" pay customers.
Is this really competition for Netflix or is it just a way for AT&T to collect more revenue from existing clients?
I am of the opinion that time will tell. This is the reason I say this. AT&T is not Netflix. This means that in order for "Screen Pack" to succeed, AT&T will have to put as much energy into it as Netflix puts into its business. Can (or will) this happen or will this just become another service that the company provides? Will if become second tier service that really does not compete with Netflix? There are other (Netflix wannabe's) out there right now. Comcast (CMCSA) has "Streampix" and Dish Network (DISH) has "A Stream Come True" but neither has invaded prime Netflix domain. There are others out there also. I am not sure if this new service by AT&T will be something that has a huge impact upon the value of the stock or not. Time will tell how much energy AT&T is willing to put into it.
The AT&T chart has surprised me as of late. From mid November to almost the end of December, the chart was showing a typical bearish continuation flag pattern. A Flag (Bearish) follows a steep or nearly vertical decline in price, and consists of two parallel trend lines that form a rectangular flag shape. The Flag can be horizontal (as though the wind is blowing it), however it often has a slight upward trend. I would like to point out that the last low in the RSI indicator before the stock gaped up is higher than previous lows. This is showing significant strength too move up. So now we have the stock hugging the upper Bollinger Band. The stock looks bullish but the MACD has just hit bullish territory, we will see if it can continue to move in this direction.
The Options Play
The stock is presently trading at 34.35 and I would expect the stock to pullback just below '34'. For this reason, I see an opportunity to capitalize on the pullback with a short term income play. This will be a straight purchase of a put option.
- Buy a March 2013 put option with a strike of '34' (priced at $0.77)
- Net Debit to Start: $0.77
- Maximum Profit: unlimited
- Maximum Risk: net debit
- Maximum Length of Trade: 2 months
Reasoning behind the Trade
- Pessimistic Earnings season may pull the markets down- AT&T would follow.
- Pull back off recent upper Bollinger Band should drop below '34.'