Exercise caution when considering these 5 highly popular stocks.

Just because a stock is well-known does not mean it is a safe investment.

Popular stocks are usually popular for a reason, but sometimes, the popularity of a stock can lead investors to complacency. Remember, Kodak was once one of the largest and most popular stocks in the world, but due to failure to anticipate or adapt to digital photography, it still successfully went bankrupt in 2012.

This is not to say that these five stocks will go bankrupt (although one of them may need to raise more funds quickly). Nonetheless, investors in these widely held stocks should be aware that each stock faces some tough competition and macroeconomic challenges.

$AT&T (T.US)$ csi commodity equity index $Verizon (VZ.US)$

Both are very popular among dividend investors. In fact, many 'conservative' stock portfolios built for retirees include these two names. But should they? $AT&T (T.US)$ csi commodity equity index $Verizon (VZ.US)$ Are they welcome choices for conservative investors who hold them?

In the 4G era, AT&T and Verizon had the top two networks, leading to a duopoly in the wireless industry. This resulted in high profit margins and dividends. Today, AT&T and Verizon have dividend yields of 6.2% and 6% respectively.

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

T-Mobile has foresight and is making every effort in the mid-band spectrum, which provides the best balance between speed and coverage for 5G phones. However, Verizon and AT&T initially did not pursue the construction of millimeter wave because it is faster to build but often difficult to achieve. In order to fill the gap in the mid-band spectrum, AT&T and Verizon spent a large amount of money in the C-band auction in 2020, acquiring mid-band spectrum worth billions of dollars and greatly increasing their respective debt burdens. Furthermore, even with the launch of the C-band, they are still catching up to T-Mobile.

This has put Verizon and AT&T in a dilemma. They either have to raise prices to pay for the expensive 5G construction costs, which could lead to customer outflow to T-Mobile, which usually offers affordable plans.

In the second quarter, T-Mobile added 1.7 million postpaid customers, with 0.723 million additions in postpaid phone net. AT&T added 1.05 million postpaid customers. Although its additions in postpaid phone net surpass T-Mobile with 0.813 million, it should be noted that T-Mobile is still experiencing some outflow from the former Sprint base as the traditional Sprint network is being shut down. Additionally, AT&T seems to heavily rely on phone subsidies as its free cash flow is significantly lower than expected.

Verizon's postpaid phone net only grew by 12,000, with the consumer segment loss offset by business mobility revenues.

The dividend payments of AT&T and Verizon mean that funds flow out of their businesses every quarter, which further depletes their firepower in trying to catch up to T-Mobile. T-Mobile claims to have a persistent two-year lead in the 5G field. While T-Mobile does not distribute dividends, it plans to engage in large-scale share buybacks next year. However, these shareholder returns are more flexible and can fluctuate up and down as needed.

Between high dividend payouts, high debt burdens, and the need to catch up to T-Mobile in 5G, these stocks must pay some price - even potentially reducing dividends at some point.

Another high-dividend stock that is popular with investors is Intel (1.08%). At first glance, Intel looks quite cheap with a trailing P/E ratio of only 7 and a dividend yield of 4.4%.

However, this cheap valuation may have its reasons. Since the previous management lost Intel's leadership in advanced chip manufacturing to TSMC, Intel has been losing market share to the tech giants and other companies using TSM's foundries to create their own processors.

Now, the personal computer industry is experiencing a severe decline, and this struggle has become evident. Last quarter, Intel's revenue from the personal computer segment declined by 25%. What is even more concerning is that its data center and artificial intelligence departments declined by 16%. This is because even though consumer-related products like personal computers are known to be weak, the data center market remains strong, so seeing its weakness is particularly worrisome.

The decline in profits is not good news for Intel, as it is embarking on a massive and expensive turnaround plan. This plan not only requires bringing its technology back to the level of industry leaders, but also becoming a contract manufacturer for third-party designed chips.

Establishing this manufacturing capability requires a large amount of funding. Like Verizon and AT&T, Intel also needs to worry about the payment of hefty dividends, and if Intel's execution does not improve in the short term, this could become a problem.

Intel has just secured financing of up to $30 billion from Brookfield Asset Management for this purpose, which may allow Intel to continue paying dividends while completing the construction of the contract manufacturing facilities. However, Intel will have to give up a portion of the future profits from these new factories and share them with Brookfield Asset Management.

I am more optimistic about Intel than Verizon and AT&T because if the turnaround is successful, there is room for growth. However, whether this expensive, multi-year turnaround will bear fruit remains an unresolved question that we will not know the answer to for many years.

Snowflake

Snowflake $Snowflake (SNOW.US)$ is one of the most exciting stocks, and it is hard to issue a warning about the stocks held by Warren Buffett's Berkshire Hathaway.

Unlike the other four stocks on this list, Snowflake has performed well in its business. Snowflake unexpectedly achieved growth last quarter, with an 83% year-on-year increase in revenue and gross profit margin. This is in stark contrast to several other enterprise software companies, which have reported a slowdown in transactions due to cautious customers. Snowflake's competitive advantage seems to be strong, and the growth of data-driven AI applications within the enterprise is still at a relatively early stage.

The problem boils down to valuation and interest rates. Despite enjoying a low-interest environment since the 2008 Great Recession, the current inflation panic has raised doubts about the post-pandemic interest rate environment. We may be in a higher inflation and interest rate environment for some time.

Meanwhile, Snowflake's stock price is 37 times its sales, but it is still losing money on a GAAP basis. That's extremely expensive. Yes, technically, the company's free cash flow is positive, but it also pays a large amount of money to executives based on stock. Just last quarter, Snowflake paid out nearly $0.4 billion in stock compensation. On an annual basis, this is $1.6 billion based on its market cap, diluting by 2.7% each year. Stock compensation could also grow in the coming years.

In just the last quarter, Snowflake paid out nearly $0.4 billion in stock compensation. On an annual basis, this is $1.6 billion based on its market cap, diluting by 2.7% each year. Stock compensation could also grow in the coming years.

Among these five stocks, Snowflake may still be a long-term investment; in fact, I wouldn't blame anyone for including Snowflake in their investment portfolio. However, a stock with such a high valuation doesn't have much safety margin. If a large cloud computing company or another Silicon Valley startup becomes a competitive threat, Snowflake may be reassessed. If interest rates remain high, it may take Snowflake a long time to grow into its current valuation.

Therefore, there are still risks, even when the business is operating at a high level.

Lastly, theater operators $AMC Entertainment (AMC.US)$ and AMC Entertainment's preferred stock also have risks.

I improved my stock status during 2021, and the retailers pushed the stock price so high that management was able to sell some stocks and raise cash at a high stock price to avoid bankruptcy.

However, the amount raised may not last forever. The resurgence of the pandemic has been intermittent at best, and the Omicron variant has delayed the full return of out-of-home activities, while inflationary pressures have made discretionary purchases like going to the movies more difficult. In addition, the end of summer movie lineup is very sparse as most of the movies that were shot before the pandemic have already been released.

AMC did buy themselves some time to avoid bankruptcy, as the world's second largest theater operator in the movie industry recently disclosed that it may have to file for Chapter 11 bankruptcy.

AMC won't go bankrupt anytime soon, but if audiences don't return to theaters in the streaming age, it could be a possibility in the future. Even in the second quarter, which included major releases like 'Top Gun: Maverick', AMC's free cash flow was negative $117 million.

With the summer quarter representing a low point for movie releases, the numbers are expected to be even worse for the third quarter. Meanwhile, AMC had only $965 million in cash at the end of last quarter, while its debt was $5.4 billion.

This may be why AMC issued a new class of preferred stock to fulfill its commitment made a year ago to stop further dilution of common shareholders. If the theater industry doesn't rebound as many hoped, AMC may raise more funds by selling APE preferred stock, even though it has the same ownership, technically preferred stock is not common stock.

How much will the shareholders be diluted? It's hard to say. Nonetheless, the combined market cap of AMC and APE at $9.3 billion seems high for a business with such great uncertainty.