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AT&T has new ‘upside potential’ thanks to ‘great agitator’ Elliott Management: Strategist

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Activists have taken aim at AT&T.

Shares of the telecommunications colossus surged to a 52-week high Monday after Paul Singer’s activist hedge fund Elliott Management revealed it owns $3.2 billion worth of AT&T’s common stock. The firm wrote in an open letter to the company’s board that it intends to help the company sell off parts of its business and that it could see the $37 stock rallying as high as $60.

Elliott also said the stock purchase is one of its largest investments in its history, making this move particularly significant when you consider the firm’s track record of pushing companies to meet its goals, says Boris Schlossberg, managing director of FX strategy at BK Asset Management.

“Elliott is notorious for knowing how to apply leverage,” he said Monday on CNBC’s “Trading Nation.” “They are the great agitator, and I think that’s really what’s going on. The market basically expects Elliott to … catalyze this whole process of selling assets and raising cash and therefore just reformulating the business.”

That, along with Elliott’s reportedly bold plans to shake up AT&T’s management, could explain the stock’s 2% pop on Monday, said Schlossberg, who is also co-founder of trading website BKForex.com.

“I’ve read some interesting market observations that what Elliott really wants to do is actually move the CEO out, and if that is the case, that could be also viewed as a positive catalyst because I think the market doesn’t view him as a strong manager at this point,” he said. “So, [Elliott] simply refocused the market’s attention on AT&T at this point, and I think that in and of itself should be very positive for the stock in the near term.”

Elliott’s letter cited AT&T’s questionable acquisitions under CEO Randall Stephenson, including buying DirecTV and Time Warner, and lackluster operational performance to justify its move into the company. In all, AT&T has spent about $200 billion in recent years on acquisitions.

AT&T said it plans to look at Elliott’s proposals and is working on some of the strategies the firm advocates for. It did not respond to questions about Elliott’s preference for Stephenson to step down.

Schlossberg said much of Elliott’s plan is in line with AT&T’s already-proposed updates to the business.

“[That] should be more positive as they raise more cash,” he said. “I see, definitely, some upside potential here.”

Matt Maley, chief market strategist at Miller Tabak, said AT&T’s setup was already improving before Elliott announced its involvement.

“The stock’s seen a great rally” into the news, Maley said in the same “Trading Nation” interview. “It’s broken above its trend line going back to the beginning of 2017, … and then it’s also broken above its highs from the second half of last year. And in both of these cases, … it’s broken well above those resistance levels.”

That’s a “very bullish” sign from a technical perspective, but it doesn’t mean the stock’s out of the woods just yet, Maley said.

“I do have to mention that it is, on a short-term basis, overbought,” he said. “It’s quite overbought, so it may need to take a little bit of a pullback. But, with an activist involved, that pullback may be quite small.”

AT&T shares closed roughly 1.5% higher on Monday.

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