VZ Stock Will Eventually Be a Solid Buy

For now, the negative sentiment implies a steeper discount ahead

Prior to the coronavirus from China dominating international headlines, Verizon Communications (NYSE:VZ) represented a relatively easy long-term bull case. With the telecommunications industry rolling out the next generation 5G technology, VZ stock stood to benefit handsomely. Not only does 5G offer much faster wireless speeds for the consumer retail market, it has profound implications for the economy of tomorrow.

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MoneyWire’s Matt McCall has a much more bullish term: the Roaring 2020s. Essentially, 5G is the springboard for several other digitalized platforms that will transform how we live and work. Thanks to the rapid-fire data transmission rates made possible by 5G, we can finally actualize concepts that were exclusively the realm of science fiction. We’re talking innovations such as fully automated cars and smart grids and infrastructures.

Laying the foundation for this catalyst are companies like Verizon and rival AT&T (NYSE:T). Although telecom giants have made less-than-ideal acquisitions in the past, their scale and reach are unparalleled. Hence, many investors felt comfortable buying VZ stock for the long term.

As a shareholder of AT&T, this is the position that I maintain for the telco stalwarts. Recently, China’s government stressed the importance of reinvigorated investments in 5G and other next-gen platforms, irrespective of – or perhaps more accurately, because of – the coronavirus.

Despite our warming ties with China – think the phase one trade deal – the world’s second-biggest economy remains adversarial to our national security interests. Therefore, if China intends to ramp up their infrastructure, then it only makes sense that we will do the same.

After all, President Donald Trump is about “America First.” Since he can’t afford to let the Chinese steamroll him in 5G, this geopolitical reality bodes well for VZ stock.

Questionable Latency Hangs Over VZ Stock

Although the coronavirus outbreak is splitting opinions, most analysts would probably agree that at some point the pandemic will fade. Therefore, with the longer-term narrative for Verizon a confident one, the present weakness in VZ stock is a discount.

But then the question becomes, is this moment the discount or is another, more substantial one over the horizon? This is where the situation gets tricky.

During a Morgan Stanley (NYSE:MS) investor event, Verizon senior vice president and CFO Matt Ellis stated that the coronavirus impact to its business is currently “not significant.” However, later down the line – especially if authorities fail to contain the outbreak – Ellis acknowledged the potential for disruption.

Naturally, a supply chain disruption is one of the biggest concerns for VZ stock over the next few months. Although the domestic 5G rollout isn’t directly exposed to China’s devastating epidemic, nothing in the world of tech occurs in a vacuum. With so many telecom equipment components built in China, the rollout faces an uphill challenge.

Further, companies like Apple (NASDAQ:AAPL) are feeling the pinch from the coronavirus. At a time when several manufacturers anticipated releasing their 5G-equipped smartphones and devices, the pandemic put a screeching halt to those plans.

Again, this doesn’t directly impact VZ stock since the underlying company’s earnings mostly come from monthly service revenues. However, the advent of 5G-equipped smartphones was supposed to justify Verizon’s investments into the next-gen platform. With consumer sentiment surely to suffer badly in the next few weeks, investors may wonder about Verizon’s immediate viability.

Let’s face it: telecoms aren’t exactly sexy investments. On the other hand, 5G is. Thus, we have a reverse-Justin Timberlake situation here. The coronavirus is taking sexy back.

Caution Is the Name of the Game

While I like the telecom space, ultimately, we have to respect the tape. Like other blue chips, VZ stock is a bellwether investment. In my view, the probability of a downside movement is greater than the upside.

Part of my argument involves the exponential acceleration of the coronavirus. We’ve already seen in other countries that just one transmission can rapidly deteriorate into a raging fire. For instance, Italy didn’t factor into the pandemic scare. A little over a week later, it’s one of the most infected countries with over 4,600 cases and 197 deaths.

Back at home, President Trump once gently boasted in a press conference that the U.S. had no virus-related deaths. He also encouraged the American public to take into consideration that our country only had a handful of cases. At time of writing, two people just died from the virus in Florida, bringing U.S. total fatalities to 17.

In other words, this outbreak is no joke. Secondly, the economic damage from the coronavirus could reverberate longer than we anticipate. Heck, few people anticipated that the coronavirus would take the human toll that it has.

With these facts in mind, I think the smart play is to wait. If you like Verizon stock for the long term – and for what it’s worth, I do – you’ll probably get a better deal later.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he owned shares of AT&T stock.


Article printed from InvestorPlace Media, https://investorplace.com/2020/03/vz-stock-will-eventually-be-a-solid-buy/.

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