Markets

Does This Number Mean Bad News for These 3 Stocks?

The stock market may have swooned a bit since the beginning of August, as it has on a number of occasions over the past couple of years, but it's been ages since we've witnessed a sizable correction in either the Dow Jones Industrial Average or S&P 500 .

There's a good reason for that: The U.S. economy is improving. Manufacturing and factory order data have been expanding at a brisk pace, the unemployment rate is down 38% from its October 2009 high of 10%, consumer confidence is near a multiyear high, and housing has seen a strong rebound, with home prices in the 20 largest U.S. cities averaging a double-digit increase year-over-year.

2014 subscriber total estimated. Source: Sirius XM.

In the second quarter, Sirius XM reported that its subscriber growth increased to a record 26.3 million, but that this was up just 5% from the year-ago period. Furthermore, the company's long-term debt rose by more than $1 billion thanks to a $1.5 billion bond offering it priced in May, which comes due in 2024. The satellite radio provider seems more focused on "returning capital" to shareholders through share buybacks -- which can have a positive effect on EPS by reducing the number of shares outstanding -- than on addressing the real issues, including its slowing subscriber growth and high debt levels.

Sirius XM investors should consider that the online radio space is beginning to get awfully crowded -- and that some of the company's would-be competitors have far deeper pockets.

I personally don't doubt Sirius' ability to stay profitable at this point, but like many short-sellers, I question whether or not a forward P/E of more than 30 is warranted with a subscription growth rate that has slowed to the single digits.

Source: Sirius XM.

AT&T:196,919,776 shares held short (3.8% of float)

On the other hand, the nearly 197 million shares currently held short in AT&T stock are a bit of a head-scratcher.

From the standpoint of a skeptic, I see only two reasons to bet against AT&T here.

Source: Frontier Communications.

Make no mistake about it: Frontier has been noting this problem for years and is attempting to counteract it with residential broadband additions. However, the long-term outlook for Frontier shows continued revenue deterioration, which, when coupled with high debt levels, could put its 6% dividend yield at risk of another cut. Though betting against a stock with a 6% dividend is rarely prudent, I'm struggling to see where the bull thesis takes shape with essentially no top-line growth in sight.

The secret to putting pessimists in their place is just one click away

The smartest investors know that dividend stocks simply crush their non-dividend-paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now .

The article Does This Number Mean Bad News for These 3 Stocks? originally appeared on Fool.com.

Sean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, track every pick he makes under the screen nameTrackUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.The Motley Fool owns shares of Sirius XM Radio. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

SIRI T VZ

Other Topics

Stocks

Latest Markets Videos

    The Motley Fool

    Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

    Learn More