Talking up AT&T

01/07/2005 12:00 am EST


Chris Johnson

Editor, The Winning Edge

Chris Johnson, quantitative analyst for Schaeffer's Investment Research , typically has a contrary approach to stock selection. Last year, he chose UPS as his top pick, and the stock rose 19%. This year, he goes with a well known but relatively "unpopular" company, AT&T.

"AT&T (T NYSE) has been one of the few technology plays that have performed strongly during the rally that charged through the end of 2004. Despite the strong performance, sentiment towards the telecommunications giant remains skewed towards the pessimistic side, indicating room for ‘The Street’ to begin moving into the stock during 2005. In my view, 2004 was a year of repositioning for T as it began letting go of its traditional services to focus on areas of growth.

"At the same time that they have started making fundamental improvements to the company, sentiment has been flashing bullish indications as traders and analysts have been shrugging the stock off. Signs of this are evident in options activity which has been favoring puts over calls, evident in the rising open interest put/call ratio on the stock. In addition, the 20 analysts covering the stock favor the sidelines as 100% of these analysts have rankings of a 'hold' or lower. 

"At some point, as the fundamental and technical analysis picture for the stock continue to grow more attractive, these sellers will turn to buyers, moving the stock higher. The combination of positive price activity, positive fundamentals, and negative sentiment makes AT&T a favorite for 2005."

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