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The closest thing to a no-brainer in investing is investing in a market-dominating company.

#-ad_banner-#One of the biggest markets in the world is the wireless industry. As emerging markets continue to urbanize, the number of mobile phone users will only increase. The other beauty about the wireless market is that there are only a handful of major operators, giving them a monopoly-like hold on the industry.

That's what you get with AT&T (NYSE: T), a market leader with a very robust dividend and one of the best balance sheets in the business. Its debt-to-equity ratio is 89%, compared with rival Verizon's (NYSE: VZ) 110%. During 2012, AT&T doubled its share buyback authorization, to 600 million shares.

The focus for AT&T going forward is wireless, which is a $22 billion per year business for the company and will likely continue to be its main revenue driver. AT&T already offers users some of the fastest speeds in the wireless Internet space, and it's running ahead of schedule for its 4G LTE buildout.

AT&T covers some 250 million users with 4G LTE, and it expects to have that number up to 300 million by the end of this year. AT&T beat T-Mobile U.S. (NYSE: TMUS) to the punch with its offer to pay subscribers' cancellation fee to switch to their service.

This is just the latest step in AT&T's move to expand its subscriber base. Last year, it bought the largest prepaid wireless operator in the U.S., Leap Wireless International (Nasdaq: LEAP), for $1.2 billion. The acquisition will give AT&T control over Leap's spectrum, which covers 137 million subscribers. Further, the deal will endow AT&T with a stronger prepaid business line and more customer care service facilities and low-cost data plans. The deal is awaiting regulatory approval and is expected to be completed early this year.

AT&T is also looking at opportunities to improve its growth profile through a number of strategic
initiatives. The carrier started offering a new device upgrade service called AT&T Next that allows subscribers, both new and existing, to change out their old smartphones or tablets every year without an upgrade fee or down payment.


Last month, AT&T sold its wireline residential and business service in Connecticut to Frontier Communications (Nasdaq: FTR) for $2 billion. As AT&T exits the wireline business, it's looking at wireless assets overseas. There has been speculation in the media that AT&T could possibly buy Vodafone Group (Nasdaq: FON) or another British telecom, Cable & Wireless Communications.

AT&T has said that it will not be making an offer for Vodafone, but the company has indicated that it's still interested in a deal. In any event, Europe will continue to be a priority for AT&T as the U.S. wireless market becomes more competitive.

Despite the fact the fact that wireline revenue fell 1.4% year over year during the fourth quarter, AT&T's wireless service revenue was up 4.8%. This comes as the company added over 565,000 postpaid subscribers during the fourth quarter, up from 360,000 during the third quarter.

Digging deeper into AT&T's fourth-quarter results and its operating margin was up to 21.4%, compared with the 14.5% during the same quarter last year. AT&T expects 2014 revenue to come in 2% to 3% higher than 2013, compared with a previous consensus of 1.9% growth.

The investment case for the major wireless carriers is their total yield. AT&T has a very strong dividend and a robust buyback plan. In the third quarter, AT&T bought back 55 million shares for $2 billion. This left some 215 million shares available for repurchase under its current authorization plan.

In the third quarter, AT&T also returned $2.4 billion to shareholders through dividends. The company just raised its quarterly dividend to $0.46, good for a forward yield of 5.5%. This compares favorably with Verizon's dividend yield of 4.5%. For risk-averse investors, AT&T has a beta of 0.26, meaning its stock price volatility compared with the broader market is very low.

Risks to Consider: The competition for wireless customers is intense. Verizon advertises that its data network is faster than AT&T's. Sprint (NYSE: S) now has the backing of Japanese conglomerate SoftBank Corp. (Nasdaq: SFTBY) and is looking to acquire T-Mobile. As the competition for wireless customers heats up, a looming price war could pressure AT&T's sales and profits.

Action to take --> Buy AT&T for upside to $40. AT&T is trading near the bottom of its 52-week range and at a forward price to earnings multiple of 11.8, a huge discount to its five-year average P/E of 24. If AT&T were to be trading at a P/E multiple of 15 at the end of 2014 and using earnings are in line with estimates of $2.69 a share, AT&T would be trading at just over $40 in just under a year. That's more than 20% upside.

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