Kaminsky's Call: Use Caution with These Telecom Giants

On The Strategy Sessionyesterday, we looked at Verizon and AT&T, and for good reason. The past three months have seen their stock prices leap by nineteen- and thirteen-percent, respectively.

But when we looked deeper, we saw two telecom giants rising for reasons that would not be their brass' first choice.

As the ten-year treasury collapsed and people searched for yield, Verizon and AT&T provided the missing piece. Their substantial dividend yields have made the names somewhat safe havens as we near the end of 2010.

But will 2011 tell a different story? I believe it may, and here's why.

Next year, these two rivals will be fighting each other with even more fury as the battle for iPhone customers takes centerstage. It is very difficult to see both increasing at similar rates as they take swings at each other, all the while dealing with the shrinkage of land lines.

I also spoke with UBS Telecom Analyst, John Hodulik, and he made an interesting point. Yes, a decent amount of AT&T customers will switch to Verizon if they aren't bound by contracts, but he remains neutral on VZ. The future client growth, he contends, is already built in to the stock.

Coupled with the dividend yield trade, Hodulik sees the recent ascent in Verizon as something that might very well level off. This would certainly be the case if the economy gains momentum in 2011 and the yield trade reverses.

Be cautious here as these stocks enjoy their moments in the sun. The reasons are based not in fundamentals, but in the more overall picture of the economy, and its a bleak play.

Programming note: "The Strategy Session," hosted by David Faber and Gary Kaminsky, airs weekdays at Noon ET on CNBC.

Gary Kaminsky does not hold any equity positions.

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