AT&T and Verizon Gain as Dow Falls 200 Points

Pension benefits helped AT&T and Verizon in 2013, and it's one reason they're not plummeting along with the Dow Jones Industrial Average today.

Jan 23, 2014 at 3:30PM

A surprisingly weak reading of manufacturing activity in China has hit U.S. stock markets hard today. The Dow Jones Industrial Average (DJINDICES:^DJI) has responded by falling 1.15% as of 3:30 p.m. EST, with 25 of 30 components dropping into the red.

The big news was a HSBC/Markit China manufacturing purchasing managers index falling to a six-month low at 49.6. A reading below 50 indicates contraction and this sparked early fears that China's economy won't maintain the robust growth we've seen in the last decade. This is an early reading for January, so the index will be revised before the month's final figures are released.  

Ironically, slower manufacturing in China may be good for U.S. companies which compete with the Asian power in many industries. By contrast, the same U.S. PMI reading was 53.7, indicating expansion in manufacturing here at home. It's possible that manufacturers here are stealing work from China as its labor costs become less of an advantage over the U.S.  

Telecoms buck the trend
Two stocks not experiencing the same fall today are AT&T (NYSE:T) and Verizon Communications (NYSE:VZ), respectively up 0.7% and 1.1%. Yesterday, AT&T said it would see a $7.6 billion noncash benefit from its pensions due to larger than expected gains last year and falling obligation costs. Verizon got a $6 billion benefit from pensions earlier this week due to similar dynamics.  

Pension accounting can be very confusing, but one part of these gains was due to the outstanding market performance last year. The other driver is a change in assumptions of future returns and costs years in the future. AT&T raised its assumed discount rate of future costs to 5%, which lowered the amount of assets it was required to have on hand, resulting in the noncash gain.

The change can be explained with a simple example. Let's say you owe someone $100 in 30 years and want to invest enough to cover that debt. It you assume a 4% annual return then you need to invest $30.83 to have the $100 in 30 years. But if the return you expect is raised to 5%, the amount invested only needs to be $23.14.

Pensions are much more complex than that and require a lot more assumptions, but that's one way to look at how a company can have such a large gain from a pension. These aren't the kind of consistent long-term gains investors are looking for, but it's a one-time event that's still good for the balance sheet. Pension costs have been a drag for corporate America for years, so it's good to see them turn around and be a benefit for these two companies.

3 stocks that can help you retire rich
If you're looking for some long-term investing ideas, you're invited to check out The Motley Fool's brand-new special report, "The 3 Dow Stocks Dividend Investors Need." It's absolutely free, so simply click here now and get your copy today.

Fool contributor Travis Hoium manages an account that owns shares of AT&T; and Verizon Communications. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information