WASHINGTON, May 19, 2014 – The big news on Wall Street this morning is the agreement by telecom giant AT&T (T) to buy DirecTV for a reported $48.5 billion. The idea is that both companies combined would be better able to compete in the communications maelstrom being caused by the harmonic convergence of cable, telecom, and streaming video transmission and content.
The move, generally being applauded on Wall Street, may be this high-yielding but moribund ex-Baby Bell’s best chance to enter into the high stakes sweepstakes currently dominated by rival ex-Baby Bell Verizon (VZ) and its growing FiOS service. This proposal comes on the heels of another proposed mega-buyout, this one between Comcast (CMCSA) and Time Warner Cable (TWC).
CMCSA’s proposed $45 billion snack, otherwise known as Time Warner Cable (TWC) is almost certain to be approved by the current Administration given both organizations’ monolithic support for the Democrats. So much for anti-trust enthusiasm when it comes to those 1%ers who own and operate party propaganda organs like MSNBC.
The AT&T deal is likely less controversial. Comcast has already offered the triple play action of Internet, cable, and local telephone service to its customers. But AT&T hasn’t been able to corral all three elements under a single roof, having to contract with DirecTV to provide the cable entertainment piece. Ergo, their deal would, in theory at least, put them on an equal footing with Comcast and Verizon.
Forgotten in the mix is the third and final surviving ex-Baby Bell, Qwest. That’s because Qwest (former symbol: Q) was devoured a few years back by the Louisiana-based upstart regional carrier now known as CenturyLink (CTL). The buyout occurred when Q was flirting with bankruptcy, some of which may have been linked to the insider trading activities of its now-jailed former president Joseph Nacchio. Nacchio was convicted of 19 counts of insider trading.
To the surprise of many, CTL has continued to pay a high dividend and retain solvency and general profitability in spite of the fact that it, too, lacks direct control of a cable TV entity. Perhaps that’s where Dish Network (DISH) will end up if it can’t figure out a way to get into telephonics via a merger with German-owned telecom T-Mobile (TMUS). Umm, stay tuned…
In typical fashion, this morning’s low-volume trading day finds investors punishing T slightly with the stock down about half a percent as of 11:30 a.m. EDT today.
In general trading action, all exchanges are modestly up as of the same time this morning, after the Dow spent most of the morning in slightly negative territory.
Today’s Trading Tips:
The market remains treacherous. So, like many investors who don’t want to go totally cash, this keeps us in things like REITs, preferred stocks, utilities, and a little bit of bond ETFs as we attempt to squeeze some yield out of the current yo-yo-ing market action.
Stocks, particularly U.S.-based stocks, are long overdue for a nasty correction. We’re still a little overly heavy in these stocks but are trimming them as we can, sometimes for small losses, while remaining in high-yielders as listed above. After all, it is “sell in May” time, and endless statistics support the fact that most investors don’t really make any money between roughly May 15 and October 1. So why be overly represented during this period?
Further, if you remain a bit cash heavy, with the rest in boring but decently-yielding vehicles, you won’t have to worry unduly if you go on an extended vacation this summer during which, at times, you completely lack Internet connectivity which is frequently the case for the Maven when he travels to parts unknown.
There’s nothing worse than being camped somewhere in the outback and missing the news that the market’s already crashed, taking your hapless and unprotected self-traded portfolio with it. So a word to the wise: if you’re going anyplace fun for an extended period this summer, lighten up the portfolio and enjoy yourself.
There will always be markdowns available when you return. So why not avoid having those markdowns in your portfolio to start with? Better to buy them at bargain basement prices upon your arrival back home.
Some Comments on Energy Issues:
Meanwhile, with regard to those utilities, we did reluctantly dump shares of American Electric (AEP) and FirstEnergy (FE) this morning. We’d traded out of FE last month for a swell profit after collecting a couple of huge dividends. In the meantime, although AEP comes highly recommended these days, we haven’t been above water since we bought it (although we did collect a nice dividend), so we figured we’d bail on this one, too.
Reason for these moves? Word is that we’ll be getting the latest regulations on emissions from this energy-hostile Administration on June 2, and we expect very, very bad news for utilities that still include coal as a major fuel. Both these Ohio-based utilities do.
Although both have been mothballing older coal-fired facilities, this Administration apparently would rather they and others had eliminated coal as a fuel, oh, maybe back in 1920 or so. Since that hasn’t happened, look for the latest job-destroying regs to carry disastrous news for utilities like AEP and FE.
In reality, both have already made major moves to get ahead of these savagely punitive and unrealistic regulations. But in a market that’s inclined to panic at the slightest hint of negative news, both these and other utilities with any significant coal-fired generation capacity to get pancaked when the Administration tells its chosen media outlets they can feel free to leak the so-far “secret” new regulations.
It’s probably better to not be around in this area when that happens, so we’re gone. However, once the smoke clears, both AEP and FE could be nifty buys once again. FE tends to be a pretty reliable buy the further below $31 you can get it.
This Administration’s fossil fuel
global warming climate change mania has lately come to rest on the border of tragedy and dark comedy.
Based on demonstrably phony science and augmented by leftist and redistributionist dogma, the war on fossil fuels being led by these 21st century Luddites has led to the loss of millions of jobs, a drastic increase in the price of energy, and a further significant and perhaps permanent drop in U.S. living standards for all except the crony capitalists who own the profit-less “renewable” energy-oriented companies the Administration and your tax dollars support.
When voters—as well as job-losing unions who, with the rarest of exceptions, funnel millions and millions of dollars to the Democrats—wake up to who the really evil 1% crony capitalists really are, is anybody’s guess. But, as we learned in 2012, we won’t hold our breath here. But the voter ignorance and complacency still baffles the daylights out of us.
Serendipitously, the Maven did pick up small amounts of shares in both the ZenDesk (ZEN) and TrueCar (TRUE) IPOs late last week. Both are up as of today, hugely for ZenDesk (86% as of this morning) and a little bit for TRUE (10% during the same time). We generally don’t mention these IPOs in this column until after the fact, not because we’re sneaky, but because, being small, middle-class investors, we never know if we’ll actually get the shares, so why waste the virtual ink on them unless you can actually own a few shares?
Trading his own account with his discount broker, the Maven never has access to all the deals you read about each week, only those that the discount broker actually gets in on. Traditionally, alas, the hottest deals are only available to the 1%, even at some of the more egalitarian discount houses, a key part of a business that keeps its “whales” in house in part by generously allocating juicy shares of the hottest deals to these high rollers who happily flip them at will.
On the other hand, the Maven’s broker sort-of requires us to hold IPO shares for at least 30 days before turning them over. Alas, at some point within those 30 days, a stock with even a great pop can lose most of that pop over 30 days when steady, profitable selling by less restricted holders predictably lets most of the air out of the original balloon.
Oh, the Maven and his fellow customers can unload at any time. But then, we’re prohibited from participating in IPO fun for the next 90 days. So you have to gauge what you’re doing carefully for all intents and purposes.
This is, of course, as irritating as heck, but there’s actually a reason for it. Discount houses, since they’re generally in the “selling group”—i.e., they don’t actually put up money to underwrite the new IPO shares—depend for their own allocations of shares on the major underwriters like Citi, J.P. Morgan, etc.
Part of the deal is the fact that the underwriters themselves have to try to “stabilize” the new shares for roughly 30 days after they open in order (hopefully) to establish a more or less normal trade in the issue. For this reason, they don’t want anybody who doesn’t have money on the line, like the discount houses and others in the selling group, to add a huge bunch of jittery, largely mom and pop investors to the flipping crowd.
So, undoubtedly, many of these selling group deals come with stipulations like ours. Yep, that’s cold comfort for anyone who watches their IPO share values steadily decline as the flippers skim the easy profits. But in our experience, we’ve made enough money on most of our IPO excursions to justify at least some of the frustration inherent in this 30-day waiting period.
Things don’t always work out, however. We decided to dump our underperforming shares of ALLY this morning. It’s been up over its IPO price for a total of 2-3 days in its last 40 or so days on the market, and this morning we heard that a huge bunch of insider “lock up” shares will tumble onto the market in another week or 10 days. This will undoubtedly sink the shares further, so why hang around? We took about a 1.5% loss this morning. Prudence is the better part of…well, you know.