BlackRock Was Correct In Decreasing Its Positions In AT&T And Microsoft

|
Includes: MSFT, T
by: The Analyst Hub

BlackRock Financial Management, Inc. is an investment advisory and hedge fund firm founded by Robert S. Kapito. The firm is a subsidiary of BlackRock, Inc. (NYSE:BLK). The firm caters to high net-worth individuals, banking or thrift institutions, pension and profit sharing plans, charitable organizations and corporations and manages over $150 billion in assets.

The following is a list of its top sells from the last quarter, as released in BlackRock's most recent 13F filing with the SEC.

Stock

Symbol

Shares Held - 09/30/2011

Shares Held - 12/31/2011

Change in shares

Chevron corp.

CVX

9,320,585

6,230,152

-3,090,433

Pfizer inc.

PFE

32,993,255

20,983,057

-12,010,198

General electric co.

GE

39,440,957

25,053,689

-14,387,268

Microsoft corporation

MSFT

30,736,485

20,919,867

-9,816,618

AT&T Inc.

T

21,234,360

13,154,751

-8,079,609

I believe AT&T and Microsoft may have some downside from these levels. However, I would recommend buying Pfizer from the long term perspective.

AT&T is the largest telecommunications company in the US. The company provides local and long-distance calling over its wired and nationwide wireless networks; video under the AT&T's U-verse brand to a portion of its US wireline footprint; and voice and data services to businesses worldwide.

AT&T reported disappointing Q4 F2011 results with a 25% y-y decline in EPS. This decline was on the back of weakened margins from both wireless and wireline businesses. Wireless margins sequentially decreased by 1500 bps due to smartphone subsidies, especially with higher iPhone 4S sales.

The company's management guided for a margin expansion in 2012 with flat smartphone sales. However, it seems highly unlikely with the expected launch of iPhone 5 in July. Further, headwinds in the form of continued residential line and broadband subscriber losses, and slowing U-verse adds are expected to continue. Although, company's management has indicated restructuring (sale or potential spin-off) of its legacy wireline business, I don't see many strategic options for AT&T. CenturyLink (NYSE:CTL) has categorically denied any interest in additional access lines and a spin-off to AT&T's own shareholders is also unlikely. With operational challenges in wireless and limited options with its wireline business there are no positive catalysts for near term price appreciation. On the other hand, downward revision of guidance is likely which may act as a negative catalyst.

I also don't like Microsoft. Although Microsoft's stock has seen a decent run up after a long time in anticipation of Windows 8 launch, I am not too positive on its prospects. Microsoft is going to launch Windows 8 OS this year, which can be used with tablets. As tablets continue to take market share from tradition PCs and Laptops, it was important for Microsoft to have an OS which works for tablets as well. However, Microsoft has entered this space very late and I believe this delay will prevent Microsoft from gaining a leadership position in the tablet space, which will have adverse consequence. It might end up being a 3rd player just like what happened in the mobile space. Apple's iOS and Google's Android are the main platforms in the smartphone space and they will likely be tough competition for Microsoft in the tablet space as well. After the recent run up it appears like the market is anticipating a blockbuster launch of Windows 8, which I see unlikely.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.