Fed Fever Sends the Dow Soaring, but Why Did AT&T and Verizon Fall Today?

Signs that the Federal Reserve won't rush to raise interest rates boosted the Dow, but telecoms were left out in the cold. Find out why.

Apr 9, 2014 at 9:02PM

The Dow Jones Industrials (DJINDICES:^DJI) surged 181 points on Wednesday, breaking out of its funk as the Federal Reserve reiterated its generally accommodative position on interest rates. After March's meeting, investors had feared that the Fed would be quick to push rates higher starting sometime next year, but the release of the minutes from that meeting today painted a different picture. Still, even big gains for the Dow Jones Industrials weren't enough to prevent telecom stocks AT&T (NYSE:T) and Verizon (NYSE:VZ) from losing ground Wednesday.


At first glance, good news on the economic front should be positive for the wireless industry. Both Verizon and AT&T have continued to make large investments in their respective networks, with Verizon just earlier this week making a deal to acquire the wireless assets of a major regional carrier, which includes valuable spectrum that Verizon can use to make further enhancements. AT&T has so much invested in wireless that it will change its advertising slogan to "mobilizing your world," emphasizing the future direction of the telecom industry even as it tries to phase out landlines and other antiquated technology. If low interest rates spur more economic growth, then Verizon and AT&T should benefit.

But competition has played a key role in holding Verizon and AT&T back. Today, T-Mobile announced a new $40 plan with 500 megabytes of data and unlimited talk and text that doesn't include any automatic overage fees. Rather than simply charging people when they go over their limit, the new plan will measure data use and prompt users to make additional payments if they want to boost the amount of data they use in any given month. Moves like this have forced AT&T and Verizon to follow suit, and the net impact could be falling profit margins throughout the industry.


Another competitive threat could come from the cable industry. As consolidation hits that industry hard, cable operators will do battle with traditional telecoms to an even greater extent, with package deals that encroach on each other's territory. Verizon and AT&T could stand to win as much as they lose from the fight, but success is far from assured on that front.

The wildcard for AT&T and Verizon is whether they make moves to expand internationally. With Verizon having made its big takeover of its wireless segment and with AT&T having decided to make a big repurchase of up to 300 million shares, it seems less likely that they'll take on an acquisition to expand globally. In the long run, though, international expansion might be essential if the companies want to grow further.

Investors are shunning AT&T and Verizon despite their high dividend yields because of uncertain about their future growth prospects. But if the industry reaches a new competitive equilibrium rather than flaring out in a cutthroat price war, then Verizon and AT&T both stand to do quite well in the long run.

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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.

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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.

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