Two Defensive Plays For A Fear-Driven Market

Investors searched for safe-havens Monday morning before the market open. After suffering through two straight days of losses that dragged the major indices into the red for 2014, long investors on discussed sectors least likely to be impacted by a major correction. They settled on one: big telecom.

AT&T, $T, and Verizon, $VZ, were among the top trending tickers on late Sunday and early Monday morning. Investors banked on the theory that U.S. consumers would always pay for television and Internet, no matter how much money their 401K sheds or sluggishly the economy grows. A knowledge economy like America’s, they reasoned, could cut back on everything but communication.

$T $VZ $BCE $CTL Petroglyphs to iPhones. Human communication since the cave men. That's why I'm buying AT&T.

— Dennis McCain (@dennismccain) Apr. 13 at 07:39 PM

The multiples for AT&T and Verizon are certainly considerably lower than those of other tech communication companies. AT&T has a price to estimated 2015 earnings of 12.48, according to stats on Yahoo Finance. It was one of the only stocks to remain green in the past two days. StockTwits’ pegs AT&T sentiment as 100% bullish. Facebook, $FB, which is growing far faster and makes most of its money through advertising, has a 2015 P/E ratio of 34.84.

Verizon, on the other hand, fell 1.9% from Thursday and edged lower in the pre-market. However, StockTwits’ sentiment remained strong. The crowd was 92% bullish. The company trades at a forward 2015 price to earnings ratio of 12.29.

Some investors on StockTwits doubted that AT&T and Verizon were sure bets in a correction. They argued that voice-over-IP from cable companies was stealing their traditional phone business and free Wi-Fi hot spots offered by Facebook, Google and others could make it possible to avoid paying for cell-phone data plans. They also said that messaging apps like WhatsApp, which Facebook acquired for $19 billion in February, could enable cell phone users to avoid paying texting fees.

Cablevision has "hot spots" in my area but are capable of making the entire space wifi – I believe companies like $VZ lobby hard to limits

— Sandwich of Stock (@StockSandwich) Apr. 13 at 04:53 PM

@nahrafsfa Drones/weather balloons "project loon" for remote areas. Checkout SPwifi. Google WiFi in Mountain View.

— TheMoneyTrap (@TheMoneyTrap) Apr. 13 at 05:33 PM

However, other investors countered that so-called disruptive technologies would take a long time to actually disrupt AT&T and Verizon’s businesses. For the most part, Internet will be delivered by cables controlled by the phone companies, they said.

@nahrafsfa $fb. You are wrong. Big $$$ will own the pipe and it won't be FB

— Afortyyearold (@Afortyyearold) Apr. 13 at 07:08 PM

@nahrafsfa I'm not defensive just spent 20 years in the wireless world. FB isn't going to own the pipe. Maybe GOOG but VZ in game

— Afortyyearold (@Afortyyearold) Apr. 13 at 07:15 PM

It’s not surprising that talk of defensive plays would dominate discussion. Despite a futures market that pointed to gains in the Nasdaq and S&P 500, most investors still felt bearish. Sentiment on the ETF that tracks the S&P 500, $SPY, was 70% bearish, according to StockTwits’ analytics. Sentiment on the ETFs that tracks the Nasdaq, $QQQ, and the Dow, $DIA, hovered around 58% and 60% bearish, respectively.

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