Be careful when considering these 5 super-popular stocks

Just because a stock is famous doesn't mean it's a safe investment.

Popular stocks are usually popular for a reason, but sometimes the popularity of a stock can tempt investors to become complacent. Keep in mind that Kodak used to be one of the biggest and most popular stocks in the world, but it still went bankrupt in 2012 due to a failure to anticipate or adapt to digital photography.

That's not to say these five stocks will go bankrupt (although one of them may need to raise more capital soon). Still, investors in these broadly held stocks should be aware that every stock faces some tough competition and macroeconomic challenges.

$AT&T(T.US)$ und $Verizon(VZ.US)$

Both $AT&T(T.US)$ und $Verizon(VZ.US)$ Very popular with dividend investors. In fact, many “conservative” stock portfolios built for retirees include both names. But should they?

In the 4G era, AT&; T and Verizon enjoyed the two best networks, leading to a dual monopoly in the wireless industry. This has led to high profit margins and dividends. Today, AT&T and Verizon yield 6.2% and 6%, respectively.

But now the situation is much more difficult. While wireless services are generally evidence of decline, that doesn't mean they are evidence of competition. After... T-Mobile in 2020, the merged T-Mobile and Sprint acquired Sprint, which suddenly caught up with and actually surpassed Verizon and AT&T in terms of 5G coverage and capabilities, disrupting the status quo.

T-Mobile is prescient and goes all out on the mid-band spectrum, which provides the best trade-off between speed and coverage for 5G phones. However, Verizon and AT& initially did not pursue millimeter wave construction because millimeter waves are faster to build, but they are often unattainable. To fill the mid-band loophole, AT&; T and Verizon spent a lot of money in the 2020 C-band auction, spending tens of billions of dollars to acquire mid-band spectrum, but in the process, they greatly increased their respective debt burdens. Furthermore, even with the introduction of C-band, everyone is still catching up with T-Mobile.

This left Verizon and AT& both in trouble. They either raise prices to pay for expensive 5G construction, but that could drain customers to T-Mobile, which usually offers affordable plans.

In the second quarter, T-Mobile added 1.7 million postpaid subscribers, and the postpaid phone network increased by 723,000. AT&; T added 1.05 million postpaid customers. Although the number of new postpaid phone networks surpassed T-Mobile, at 813,000, keep in mind that with the shutdown of Sprint's traditional network, T-Mobile is still losing some of the Sprint base losses. Furthermore, AT& appears to be heavily reliant on mobile phone subsidies because its free cash flow is far below expectations.

Verizon's postpaid phone network grew by only 12,000, and the consumer portion of the loss was offset by corporate mobility gains.

AT&T and Verizon's dividend payments meant that money flowed out of their business every quarter, further draining their firepower to catch up with T-Mobile. T-Mobile claims that it has two years of enduring leadership in 5G. T-Mobile isn't paying dividends, but plans to do a major buyback next year. However, these shareholder returns are more flexible and can fluctuate up and down as needed.

Between high shareholder payments, high debt burdens, and the need to catch up with T-Mobile in 5G, these stocks will have to pay a price — and maybe even cut dividends at some point.

Another high-dividend stock popular with investors is Intel (1.08%). At first glance, Intel looks pretty cheap, with only 7x trailing earnings and 4.4% dividend yield.

However, this cheap valuation might make sense. Since the previous management lost its leadership in leading chip manufacturing, TSMC Intel has been losing market share Advanced Microdevices and other tech giants Oundries that are using TSM's F to create their own processors.

Now that the PC industry is experiencing a severe recession, this struggle has become apparent. The revenue of Intel's personal computer-related division fell 25% last quarter. Perhaps more worryingly, its data center and artificial intelligence division have declined by another 16%. This is because although consumer-related products like PCs are notoriously weak, the data center market is still strong, so it's particularly worrying to see it weak.

The decline in profits is really bad for Intel because it is embarking on a huge and expensive plan to turn a loss into profit. This plan requires not only returning its technology to the level of industry leaders, but also becoming a foundry to produce chips designed by third parties.

Building this productive capacity requires significant capital. Like Verizon and AT&T, Intel also needs to worry about huge dividend payments, which could become a problem if Intel's execution doesn't improve in the short term.

Intel and Brookfield Asset Management have just provided up to $30 billion in financing for this, which may allow Intel to continue to pay dividends while completing the construction of the foundry. However, Intel will have to give up its share of future profits from these new plants to share with Brookfield.

I'm more optimistic about Intel than Verizon and AT& because if the improvement succeeds, there is room for growth; however, whether this expensive, multi-year turnaround will bear fruit is still an open question, and we won't know the answer for many years.

snowflakes

snowflakes $Snowflake(SNOW.US)$ It's one of the most exciting stocks and it's hard to warn Berkshire Hathaway about Warren Buffett's holdings.

Unlike the other four stocks on this list, Snowflake performed well on a business level. Snowflake unexpectedly achieved growth last quarter, with revenue rising 83% year over year and its gross profit margin. This is in stark contrast to several other enterprise software companies, which have indicated a slowdown in transactions amid customer caution. Snowflake's competitive advantage appears to be strong, and the growth of data-based artificial intelligence applications within enterprises is still in a relatively early stage.

The problem boils down to valuations and interest rates. Although we have enjoyed a low interest rate environment since the 2008 Great Recession, the current inflation fears have raised questions about the post-pandemic interest rate environment. We are likely to be in an environment of higher inflation and interest rates for some time.

Meanwhile, Snowflake's stock price was 37 times sales, but it was still losing money on AgAp's basis. That is extremely expensive. Yes, technically, the company's free cash flow was positive, but it also paid large sums of money to executives on a stock basis.

Last quarter alone, Snowflake paid nearly $400 million in stock compensation. On an annual basis, it is 1.6 billion US dollars. At this market value, it is diluted by 2.7% per year. Stock compensation is also likely to increase in the next few years.

Of these five stocks, Snowflake is probably still a long-term investment; in fact, I wouldn't blame anyone for having Snowflake as part of their portfolio. However, a stock with such a high valuation doesn't have much margin of safety. If one of the big cloud computing companies or another Silicon Valley startup becomes a competitive threat, Snowflake could be re-examined. If interest rates remain high, it may take a long time for Snowflake to grow to its current valuation.

Therefore, even if the business operates at a high level, there are risks.

Finally, cinema operators $AMC Entertainment(AMC.US)$ Holding preferred shares with AMC Cinemas is also risky.

My C improved stock status during 2021, and the retailer pushed the stock to such a high level that management was able to sell some shares and raise cash at high stock prices to avoid bankruptcy.

However, the amount raised may not last forever. The resurgence of the pandemic was intermittent at best, with the Omicron variant delaying the full return of activities outside the home, then surging inflation put pressure on discretionary purchases such as going to the cinema. Also, the late-summer movie list is very empty, as most movies shot before the pandemic are now showing.

AMC has indeed bought time for itself and avoided the recent disclosure by Cinemaworld, the world's second-largest theater operator, that it may have to file for Chapter 11 bankruptcy.

AMC won't go bankrupt anytime soon, but this could be a possibility in the future if viewers don't return to theaters in the streaming age. Even in the second quarter, which included blockbusters such as “Top Gun: The Lone Ranger,” AMC's free cash flow was negative $117 million.

As the summer quarter represents a low point in movie release lists, the numbers for the third quarter are expected to get worse. Meanwhile, AMC had only $965 million in cash and $5.4 billion in debt at the end of the last quarter.

This is probably why AMC is issuing a new preferred stock to fulfill its promise a year ago not to further dilute common shareholders. If the theater industry doesn't rebound as many hope, AMC may raise more capital by selling APE Preferred Shares, which are technically not common shares although it has the same ownership.

How much will shareholders be diluted? It's hard to say. Despite this, AMC and APE's combined market capitalization of $9.3 billion seems high for a business with so much uncertainty.