The house rules are simple in this weekly column.

  • I bash a stock that I think is heading lower.
  • I offset the sting by recommending three stocks as portfolio replacements.

Who gets tossed out this week? Come on down, AT&T (NYSE: T).

Throw Ma Bell from the train
Shares of AT&T hit a fresh 52-week high, and I'm still not sure what investors think they're buying.

This obviously isn't a growth story, as analysts see flattish top-line upticks in 2010 and 2011. The bottom line has shown improvement, but there's only so much margin growth that a company can squeeze from a dying business.

As one can imagine, its original landline business is fading away. Growth to offset that decline has come largely from broadband connectivity, its U-verse television service, Web-based telephony, and wireless.

Let's tackle AT&T as a wireless carrier, first. The network is notoriously dreadful, and instead of tackling the problem aggressively, AT&T went the controversial route of axing its unlimited data plans. Rival carriers are taking advantage of that, even though Verizon's (NYSE: VZ) CEO indicated that his company may also introduce tiered pricing early next year.

Why would Verizon Wireless follow this unpopular path? Could it be that the hyped Verizon-based iPhone is finally coming?

Surely AT&T's wireless business is going to be dealt a serious blow the moment the iPhone is available on networks with better reputations. AT&T's monthly wireless churn rate clocked in at a record low 1.01% this past quarter, but there's going to be a stampede out of the carrier when the iPhone is legally available elsewhere, domestically. How important is the iPhone to AT&T? Well, in its latest quarter it had 1.6 million organic net additions of total wireless subscribers, yet it activated 3.2 million iPhones. Sure, a good chunk of those were upgrading from older models, but the math still isn't pretty.

Let's also get into U-verse. The broadband-based TV service has been a cable killer in its infancy. AT&T closed out the second quarter with 2.5 million TV subscribers -- roughly a tenth of the audience that the country's largest cable provider is reaching, but 60% ahead of where it was a year ago.

AT&T's U-verse and Verizon's FiOS are making compelling value propositions, but they're just unfashionably late to a fading party. Media market research specialist SNL Kagan reported that this past quarter was the first quarter -- ever -- that the pay television market suffered a net decline in subscription. Couch potatoes are starting to say goodbye to their fat cable bills, and this trend isn't going away as tech heavies make it easier to stream on-demand content through Web-based streams and high-def antennas without having to write a chunky check to U-verse or any of its larger rivals.

If you own AT&T, congratulations on the 52-week high. Now do yourself a favor and cut the cord before everybody else does.

Good news
As I do every week, I don't talk down a stock unless I have three alternatives that I believe will outperform the company getting the heave-ho. Let's go over the three fill-ins.

  • Apple (Nasdaq: AAPL): It's true that Apple is also barreling toward fresh highs, but your portfolio deserves to ride the coattails -- and not a pretender riding Apple's coattails. Nearly everything that Apple touches turns to iGold, and the stock is also cheaper than you think. Apple is trading at just 16 times next year's earnings, not bad for a company where net sales soared 61% this past quarter. AT&T may be fetching 11 times next year's projected profitability, but consolidated revenue in its latest quarter inched up a mere 0.6%.
  • Novatel Wireless (Nasdaq: NVTL): Wireless carriers love to offer tethering, charging extra for smartphone owners to use their 3G mobile connections to power laptops, tablets, and portable media players. It's ridiculous that AT&T is charging extra for tethering when it's only offering metered data for new plans. Novatel's MiFi is coming to the rescue. Its mobile hotspot offers Wi-Fi connectivity to as many as five different devices at the same time. Yes, the MiFi and Sierra Wireless' (Nasdaq: SWIR) Overdrive will eat into their broadband card business, but mobile hotspots are far more disruptive. Now that Virgin Mobile is offering its own MiFi with unlimited data for just $40 a month, AT&T will be hard-pressed to sell pricier mobile broadband connectivity with lengthy contracts to boot. Yes, Novatel has been a disappointment lately, but the stock is barely trading for more than the $6.50 in restricted cash and equivalents on its balance sheet.
  • China Unicom (NYSE: CHU): If you're going to buy into a wireless carrier, do it in a fast-growing emerging market. China Mobile (NYSE: CHL) is the top dog in China, but I'm leaning toward China Unicom here. It's China Unicom, after all, that has contracted with Apple to put out the iPad and iPhone 4 in China. The appeal may be limited to China's affluent citizens, but China Unicom is growing quickly. China Mobile is cheaper, trading at less than half of the forward earnings multiple as China Unicom. I think both are solid replacements for AT&T, but the upside is higher for China Unicom.

Sorry, AT&T. If I can butcher your old tag line, I just want to reach out and touch someone else.

Apple is a Motley Fool Stock Advisor choice. The Fool owns shares of Apple and China Mobile. Try any of our Foolish newsletter services free for 30 days. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.

Longtime Fool contributor Rick Munarriz doesn't mind taking out the garbage every so often. He does not own any of the stocks in this story, except for Novatel. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.