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No iPhone 5 love for Verizon and Ma Bell

September 14, 2012: 11:27 AM ET

In a classic case of be careful what you wish for, shares of AT&T (T) and Verizon (VZ) both tumbled more than 2% Friday morning even though pre-orders for Apple's (AAPL) eagerly anticipated iPhone 5 sold out in under an hour. Meanwhile, Apple hit another all-time high and continued its march toward $700.

Why are investors dumping Big Red and Ma Bell? My colleague David Goldman has already explained how the launch of a new phone from Apple is bad news for these companies' wireless profit margins in the short-term. And traders on StockTwits were quick to note that as well. (One even cited Dave's latest story on the iPhone 5 and carrier margins.)

abebut: @Squidworth iPhone 5 margins will be much worse. Same price, but more expensive to build. And $VZ is not happy:

stephanie_link: Right on plan - $T $VZ estimates lowered on the iPhone launch - higher vols but lower margins.

Interestingly, investors were split on which of the two big carriers would sell more iPhone 5s initially.

kylelenk: Worried about AT&T's reluctancy to advertise/push iPhone. Higher subsidies but might lose service to $VZ$T

jglmac: $AAPL anyone wonder if $VZ customers will lineup strong, since their 2 years is up in February, for those who got their first iPhone w/them?

Great point. I am a Verizon customer and I switched to a now completely antiquated iPhone 4 in the winter of 2011. I'd love to upgrade to an iPhone 5 ASAP but I'm not sure if it's worth doing so now or if I should just wait for the next upgrade (iPhone 5s? iPhone 6?) that would likely be introduced in the third quarter or fourth quarter of 2013. I can't be the only one in that boat, right?

Still, it's also interesting to note that shares of Sprint (S) were higher Friday even though it too will offer the iPhone. In fact, it paid Apple so much to become an iPhone carrier that it could hemorrhage money on the device for years to come.  So there has to be another reason besides the iPhone margin issue to explain why Verizon and AT&T are down. I think that reason is the Fed and QE3.

As the chart below shows, Verizon and AT&T have both been solid performers this year. They have each benefited somewhat from the fact that nervous investors were seeking strong yields in less risky stocks. AT&T and Verizon each pay dividends that yield nearly 4.7%.

And even though QE3 may mean that Treasury bonds and other fixed-income securities will continue to offer low yields, the Fed's latest easing is also being viewed (for now at least) as an excuse to go back into riskier stocks with more growth potential. AT&T and Verizon do not fit that category. So that's probably why they, as well as some other stodgy stocks in consumer staples and health care, were falling.

TripleDTrader: Risk off day...defensive stocks getting beat. $T, $LLY, $MRK, $JNJ, $KO, $VZ, $WMT

Finally, my Reader Comment of the Week. I noted on Thursday that QE3 was great news for most stocks. But Facebook (FB) did not join the rally. (Although they did pop more than 5% on Friday.) One Twitter follower had this to say about the lack of a QE3 bump for Facebook.

Ha! Maybe the Fed will buy $40 billion worth of Facebook stock in QE4 if shares head back below $20.

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Paul Lamonica
Paul R. La Monica
Assistant Managing Editor, CNNMoney

Paul R. La Monica is an assistant managing editor at CNNMoney. He is the author of the site's daily column, The Buzz, and also tweets throughout the day about the markets and economy @LaMonicaBuzz. La Monica also oversees the site's economic, markets and technology coverage.

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