Wall Street Stock Forecaster Hotline – Friday, September 2, 2011

AT&T INC., $28.05, New York symbol T, fell 3% this week after the Department of Justice said it would launch a court challenge to block the company’s deal to buy rival wireless carrier T-Mobile from Germany’s Deutsche Telekom AG. Adding T-Mobile would make AT&T the largest wireless carrier in the U.S., with 132 million subscribers.

Regulators feel that the purchase would give AT&T too much control over the wireless market, and lead to higher rates for customers.

AT&T is paying $39 billion ($25 billion in cash, and $14 billion in stock) for T-Mobile. That’s equal to 23% of AT&T’s $166.2-billion market cap. If the deal falls through, AT&T will pay Deutsche Telekom $3 billion, and give it the rights to some of its wireless spectrum.

The company will probably alter some of the terms of deal to win regulatory approval. That could include selling some of T-Mobile’s assets to other wireless firms.

AT&T is still a buy.

AT&T was recently covered in the July 2011 issue of Wall Street Stock Forecaster. Click here to access it.

AT&T was recently covered the Wall Street Stock Forecaster Hotline for August 5, 2011. Click here to access it.

VERIZON COMMUNICATIONS INC., $35.56, New York symbol VZ, would gain if the AT&T/T-Mobile takeover falls through. That’s because the deal’s collapse would prevent Verizon’s main rival from gaining market share. Verizon owns 55% of Verizon Wireless, which is the largest provider of wireless services in the U.S., with 106.3 million users. U.K.-based Vodafone Group PLC owns the remaining 45%.

Meanwhile, Verizon has raised its quarterly dividend by 2.6%, to $0.50 a share from $0.4875. The new annual rate of $2.00 yields 5.6%.

Verizon is a buy.

Verizon was recently covered in the April 2011 issue of Wall Street Stock Forecaster. Click here to access it.

Verizon was recently covered in the Wall Street Stock Forecaster Hotline for July 29, 2011. Click here to access it.

INTERNATIONAL BUSINESS MACHINES CORP., $166.98, New York symbol IBM, bought two companies this week. Both purchases will strengthen IBM’s software operations.

IBM is paying $387 million for privately held Algorithmics. The purchase price is equal to 10% of the $3.7 billion, or $3.00 a share, that IBM earned in the three months ended June 30, 2011.

Toronto-based Algorithmics makes software that helps banks and insurance companies analyze a wide variety of data, and make better lending decisions.

IBM is also paying an undisclosed amount for i2, a U.K.-based firm whose software helps its clients cut down on fraud. i2 has over 4,500 customers in 150 countries.

IBM is a buy.

IBM was recently covered in the May 2011 issue of Wall Street Stock Forecaster. Click here to access it.

IBM was recently covered in the Wall Street Stock Forecaster Hotline for July 22, 2011. Click here to access it.

PFIZER INC., $18.46, New York symbol PFE, makes Lipitor, a leading cholesterol drug. However, the U.S. patent for Lipitor expired in June 2011. That will let rival drugmakers sell cheaper, generic versions of this drug.

Even so, Pfizer has several new promising drugs in its pipeline, including Eliquis, a new anti-stroke drug that Pfizer developed with Bristol-Meyers Squibb Co. (New York symbol BMY). The Food and Drug Administration has also approved Xalkori, Pfizer’s new lung-cancer drug.

Pfizer trades at just 8.2 times its forecast 2011 earnings of $2.24 a share. The company spends 14% of its revenue on research. That comes out of its current earnings, so its true p/e ratio is somewhat lower. The $0.80 dividend yields 4.3%.

Pfizer is a buy.

Pfizer was recently covered in the September 2011 issue of Wall Street Stock Forecaster. Click here to access it.

Pfizer was recently covered in the Wall Street Stock Forecaster Hotline for July 8, 2011. Click here to access it.

J.C. PENNEY CO. INC., $25.15, New York symbol JCP, operates over 1,100 department stores in the U.S. It also sells goods over the Internet.

The company reported that its sales fell 4.5% in August 2011, to $1.37 billion from $1.44 billion in August 2010. Same-store sales fell 1.9%. That was worse than the consensus estimate of a 0.8% increase.

Many shoppers are spending less on back-to-school items, due to the uncertain economy. As well, Hurricane Irene hurt sales at Penney’s stores on the eastern seaboard.

Still, sales should pick up over the next few months. Penney continues to launch exclusive brands, such as Liz Claiborne clothing. The company’s earnings should also improve as it realizes savings from a new inventory-management system and last year’s shutdown of its catalogue business.

J.C. Penney is a buy.

J.C. Penney was recently covered in the June 2011 issue of Wall Street Stock Forecaster. Click here to access it.

J.C. Penney was recently covered in the Wall Street Stock Forecaster Hotline for June 17, 2011. Click here to access it.

Our next Hotline will go out on Friday, September 9, 2011.