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AT&T - Preposterous!


Does anyone else find it just a tad ridiculous that, just two days before the release of the jazzed up, brand-new, super-sleek and sexy, priced for the masses 3G iPhone, AT&T is trading a mere dollar above its 52-week low? Isn’t it absurd that right now you can buy the sole American distributor of the new iPhone, which AT&T expects to outsell the old iPhone in its first year, and get a juicy 4.8% yield, way better than Treasurys even without factoring in the tax favored status of dividends—if you wanted to buy this stock just for the income it would be a slam dunk right now, even if Barack Obama repeals the dividend tax cut.

The preposterousness of AT&T at $33 just days before the iPhone launch is beyond description—this must be the Dada of stocks, like when Marcel Duchamp turned a urinal upside down and called it a fountain—all of which is a long-winded way of saying, I would be a buyer of AT&T right now, and because the new iPhone comes out Friday, I’m waiving my usual requirement that you wait five days before you buy any stock I recommend. This is AT&T, nude, descending the staircase, to the 52-week low, and you got to catch her!

Does anyone need to explain how great this product is anymore? We don’t know if it will be a babe-magnet, as my nephew and head writer Cliff Mason called the first version in a column at thestreet.com, where I’m the largest shareholder, a director, commentator, co-founder, and sometimes plumber, a little more than a year ago, but we do know this phone is going to SELL. Oh, and by the way, Cliff’s now writing the Voice of Cramerica posts on the Mad Money blog at CNBC.com—the only place on the internet where you’ll find novel Mad Money content, unlike those zillions of websites that just repeat what I say endlessly or try to make me look bad. The fact that Cliff's comment was over the top sexist is not lost on me, the Gangster of Love--oops that was Steve Miller, but you sense my outrage with my midnight joker slash toker nephew.

But let’s get back to the story of AT&T—I can only fit so much nepotistic promotion in a show—this is ultimately about a company that lowered guidance before the launch, which AT&T did, alerting the street to all the potential negatives, pricing them into the stock, and now is poised to reap the benefits of all the positives—like sign-ups galore—that no one’s thinking about yet because AT&T lowered expectations. Don't wait until you see my NASCAR special on Sunday night at 7 PM on NBC to see that AT&T sponsors racing king Jeff Burton, buy it ahead of the show!

Because AT&T is subsidizing the new iPhone, something it didn’t do with the original one, the company said it expected to take a 10 to 12 cent earnings hit because of higher subscriber acquisition costs. AT&T is going back to the normal model that every other phone uses, where the provider pays part of the cost of the phone and in exchange you sell them your soul for two years—or at least, that’s what an ordinary mobile phone service contract reads like. Because of this the stock is actually down 12% since Apple announced the iPhone 3G, which has much faster internet connection speeds, clearer telephone service, a sleeker look and a much lower price--$300 for the one with more memory compared to the initial $600 price tag on the original, on June 9th.

AT&T is down BECAUSE of the new iPhone—preposterous I know, but the street sees what it wants to see, and all it saw was that number cut. They're looking backwards, we're looking ahead. We can't make money off of Apple here, in fact, we would trim any Apple position into the launch and take the money and put it in the bank, the AT&T bank, because that 4.8% yield is better than you're going to get from any real bank I know of.

We know that the new iPhone 3G does indeed rock for AT&T because it will no longer be sharing monthly revenues with Apple like it had to do with the first generation iPhone, and AT&T will be charging more for now mandatory data plans, which means at least $15 a month of extra revenue per user. Since you have to sign a two year contract to buy one of these phones—the $360 AT&T will make off of the more expensive, mandatory data plan more than offsets the money they’re spending to subsidize the new iPhone. Plus, you’ll have to pay extra for text messages on the iPhone 3G, whereas they came free with the original iPhone—that’s more money down the line for AT&T.

Those $200 and $300 new iPhones will actually generate a lot more money over time for AT&T than the original iPhone ever did, even though AT&T is taking a hit every time it sells one. Remember, that’s just a short-term hit—this phone is only cheaper when you buy it, not over the full two year contract, something Wall Street just doesn’t seem to get. AT&T has gone back to hosing its customers with the iPhone 3G, just like any good wireless provider should. This is a good thing, and eventually the big money guys on the street will figure that out, but I would want to be in this stock before then.

Now there’s the obvious drawback that you have to go to the store and get the phone activated, but I don’t think that’s a big deal, since that’s what you have to do to buy every other phone in existence in this country.

AT&T is now trading at 10.2 times 2009 earnings estimates, while Cramer-fave Verizon is trading at 12.4 times it’s expected 2009 earnings—that’s preposterous. AT&T has the iPhone, Verizon doesn't! Time to profit from the despair and the disparity!

Bottom line: All the bad news about the iPhone 3G is in AT&T’s stock. You’re about to start hearing the good news—tons and tons of new AT&T subscribers, or old subscribers signing up for more expensive plans—don’t you want to get in ahead of that?

Questions for Cramer? madmoney@cnbc.com

Questions, comments, suggestions for the Mad Money website? madcap@cnbc.com

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