AT&T Pullback Presents Buying Opportunity

So far in the new year, equity investors have proved reluctant to take even a momentary break from their buying binge, which has pushed the Dow up almost 18% in four months. Rather than going all out, I recommend very cautious, disciplined accumulation as individual stocks and sectors hit speed bumps. A perfect example right now is telecom stock AT&T (NYSE: T ). Why the need for caution? I believe one of these days, perhaps very soon, a couple of adverse news events will spring out of left field and trigger the next 4%-7% “correction” in the blue-chip indexes. We can already see the technical conditions shaping up for such a pullback . For instance, the number of Big Board stocks trading above their 50-day moving average currently stands at 73.5%. Back in October, when the rally off the summer lows was young and robust, the total climbed as high as 90%. As recently as early November (the post-election peak), 88% of NYSE stocks, by this measure, were participating in the uptrend. So clearly, a significant percentage of the market’s foot soldiers are retreating, even as the generals continue to cry, “Charge!” I expect to have a flurry of buy signals for you when the indexes finally crack. (We’re still in a powerful cyclical bull market that should last another two or three quarters anyway.) So if a sell-off is in the cards, why am I hot on AT&T right now? Well, telecom stocks soared in December and early January — the old, familiar case of too much, too soon. Remember, these are slow-growing utilities, prized mainly for their lofty dividends. Thanks to T’s stiff price drop over the past few sessions, the stock’s dividend yield has crept back above 6%. I prefer Ma Bell these days over Verizon Communications (NYSE: VZ ), because T’s earnings are growing faster and the yield is higher. Pay up to $28.50 for T. Elsewhere in the utility space, Duke Energy (NYSE: DUK ) announced plans Monday to acquire North Carolina neighbor Progress Energy (NYSE: PGN ). Terms of the deal seem fair enough to both sides, but I don’t look for huge cost savings or a dramatic pick-up in earnings growth. Both stocks rate a hold if you own them. Bonus Bond ETF Buy Finally, my heart goes out to those of you who live in Illinois. It looks as if your governor and state legislators are about to sock you with a mammoth tax increase to plug the gaping $15 billion hole in the Prairie State’s budget. Let’s hope the new legislature will get serious about cutting the state’s runaway spending. Meanwhile, for investors, there may be a silver lining in this black cloud: If Illinois, one of the worst fiscal actors among the states, takes a first step away from the abyss, some of the fear that has roiled the municipal bond market may begin to subside. To take advantage of this, buy the PowerShares Build America Bond Portfolio (NYSE: BAB ) at $25.50 or less. Technically, BAB is showing excellent relative strength versus Treasury bonds. Hang in there; I think we’ll be rewarded soon. BAB’s current yield is 6% (fully taxable).
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