Dear Mr. Berko:

I’m 70 and got in the market for the first time in early 2002, buying 100 shares of AT&T. I recently discovered I now have only 20 shares. I’ve had three different brokers, and not one of these youngsters is able to give me an explanation about what happened to 80 of my shares. I’m not sure what I paid for my 100 shares, but they seem to have done nothing but lose value. Should I sell the stock, which was represented to me by my first broker as being very safe? The new brokers I’ve had won’t give me a definite answer and they just mail me worthless research reports.

W.B., Columbus, Ohio

Dear W.B.:

In the last few years, many brokers have left their jobs to find more productive work. What we have now is a new crop of kids who were trained by computers and think that a blue chip is worth $5 in a poker game. It can be unsettling for a 70-year-old investor to rely on them for financial information.

Your original buy of 100 shares is now 20 shares because AT&T Corp. (T-$19.35) effected a 1-for-5 reverse split in late 2002. Prior to the reverse split, AT&T had nearly 4 billion shares outstanding; after that, the company now has just under 800 million shares out.

AT&T, still the largest long-distance phone company in the universe, recently reported fourth-quarter income of $340 million, or 43 cents a share – not bad earnings, considering the company’s revenue growth has been bleeding for five straight years. Its fourth-quarter 2003 revenues crashed 13 percent from the comparable quarter of 2002 and are expected to fall at least 10 percent this year as competition from mobile and local carriers continues to siphon customers from old Ma Bell.

Today’s 95-cent dividend yields a sweet 4.9 percent, and though it may be increased to $1 or $1.05 this year, I think companies like Cingular, Verizon, Nextel, etc., will be eating AT&T’s breakfast, lunch and dinner. Many cell phone users have plans that allow them to make (almost) unlimited long-distance calls for a low fixed price – certainly less than making a long-distance call from their landline phones.

However, AT&T is still a long-distance monster, with 2004 revenues expected to come in at the $32 billion to $33 billion level. Most revenues derive from the large corporate market (where AT&T is the 800-pound gorilla) because the company is able to provide complex and very satisfactory global service to its large corporate clientele.

Management is working like big, busy beavers to cut costs. AT&T originally planned to reduce its workforce by 6 percent last year, but some of the suits on Wall Street believe the company actually reduced its 2003 employee count by 12 percent, or nearly 9,000 workers. This could save the company more than $600 million a year. The introduction of Internet voice service may significantly reduce network costs by as much as 7 percent.

Annual interest costs, which were $3.2 billion several years ago, have been reduced to a shade over $1 billion this year due to lower interest rates and a large reduction in the company’s long-term debt. AT&T ranks near the top on customer satisfaction surveys conducted by J.D. Power and Associatess. Customer satisfaction is extremely important as competition becomes more aggressive.

Don’t sell your 20 shares yet. Rather, consider purchasing another 80 shares to bring your total back to 100, which is always a nice, round number. If AT&T does stabilize its revenues and restore growth via a successful marketing of bundled telecom services, earnings should improve nicely. The cost cuts enacted by management last year and this year could return AT&T to attractive profitability. Earnings for this year could exceed $2.20 a share, and by 2006, some suits think AT&T could bring in earnings of $3 a share. The current price-earnings ratio of 8.2 still reflects a lot of doubt by many investors. If management can prove them wrong, I believe AT&T (once – and if – stabilized) should trade at 14 times earnings.

So if AT&T earns $3 by 2006, it’s possible that it may trade in the low $40s, and that’s my most sanguine outlook. But you’re still going to be a long way from even.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net.