In the competitive spirit of college basketball's annual championship tournament, The Motley Fool brings you Stock Madness 2007! Our writers are making head-to-head arguments for their chosen stocks (but not necessarily investment recommendations -- this is, after all, a game), and you'll pick the winners with your article recommendations and Motley Fool CAPS ratings. Who will win the right to cut down the net? Let's tip things off and find out!
The name AT&T (NYSE:T) may ring very familiar for you.
The company, born in 1885, was once regarded as a true monopoly. Though the monopoly was broken up, SBC, one of the former Baby Bell spin-offs, recently bought AT&T and fellow Baby Bell BellSouth to create today's $233 billion behemoth.
Don't look at me like you know me
Mind you, this isn't your parents' AT&T (or my parents', for that matter -- they both once worked there). Far from it. Sure, the company still focuses on communications, but today it's communications with some whiz-bang sex appeal. Although the company is still one of the leading providers of local and long-distance telephone service over traditional land lines, the new AT&T provides services like high-bandwidth data, managed networking, voice over IP (VoIP), consumer Internet, satellite TV, and cellular voice.
Whether you're watching videos over YouTube, sending a picture of your dog over your cell phone, or trying to catch the latest episode of American Idol, you can do it all using services from AT&T. And as more new services emerge that rely on the communications backbone, the quality of that backbone is only increasing in importance. That's why AT&T is busy working on new areas like running optical fiber directly to customers' homes. How else will Netflix (NASDAQ:NFLX) ever make its movie-download service appealing enough to replace physical-media movie rentals?
The financial finger-roll
As exciting as AT&T's business is, the company is no slouch when it comes to recent financial performance, either. As fellow Fool Anders Bylund pointed out prior to the company's most recent quarter, AT&T's margins have been very steady, potentially a sign of a business with a strong moat. Return on equity has been steadily ticking upward, and the company has also been managing double-digit earnings-per-share growth -- not an easy task when you're a $200 billion-plus company.
And right now, this can all be yours for 16 times trailing EPS, or about 2 times book value. That sure looks like a steal when stacked against competitor Comcast (NASDAQ:CMCSA), which is trading at 43 times trailing EPS. Though AT&T and Verizon (NYSE:VZ) trade at similar multiples, Wall Street analysts expect that AT&T will grow earnings at nearly double the rate of Verizon.
The tomahawk jam
AT&T may have ended up grouped among the "widows and orphans" stock picks, but you don't get there unless you've put up stable, predictable results and give a strong return (did I mention you get almost 4% in dividends just for holding AT&T?). AT&T hasn't been hibernating in recent years, it's been pumping iron. Now the stock is ready to make a run, and there's room on this slam-a-jam express for those widows and orphans -- along with income investors, value investors, and growth investors.
What about Wal-Mart (NYSE:WMT), you ask? Well, from what I hear, the company sells commodity goods at razor-thin margins in stores that give people the heebie-jeebies. Same-store sales are slowing, overall growth is slowing, and investors are getting so bored they find more excitement in Wal-Mart's bland clothing aisles than in its stock. Over the past five years, the stock has lost investors 26%, and it still trades at more than three times its book value. Maybe, just maybe, value investors will see something here after current investors lose some more money. But until then, keep movin' -- ain't nothin' to see here.
Do you think AT&T should shimmy on into the next round? If so, simply follow this link and rank the stock "outperform" in Motley Fool CAPS. If not, vote it "underperform." Later this week, we'll tally your votes to determine which stocks will advance one step closer to the title.
Read our opposing article on Wal-Mart, or see all the entries in the tournament.
Do you think you could pitch your favorite stock -- or ditch your least favorite one -- in less than 27 seconds? That's what we're doing over at Motley Fool CAPS. Check out our new stock videos.
Netflix is a Motley Fool Stock Advisor selection, while AT&T is a former pick of that service. Wal-Mart is an Inside Value recommendation.
When it comes to jams, Fool contributor Matt Koppenheffer favors the 360 jam off the header assist. He does not own shares of any of the companies mentioned. The Fool's disclosure policy always slams with style.
