I remember when cell phone wars were all the rage, but now hardly anyone is paying attention to them. The cell provider stocks have faded out of the limelight. This is in spite of the world going into a major upgrade cycle from 4G to 5G. The hoopla should be big because experts tell us to expect a 10x improvement in speeds. This could drastically change a lot of our daily routines. Verizon (NYSE:VZ) should be the talk of the town, yet VZ stock is red for the year.
Maybe the mess from the quarantine hijacked the attention, but if that’s the case it will soon come back en vogue.
So 5G is exciting news on Main Street, but so far Wall Street is not sounding a fanfare. Instead, investors are enamored with the opportunities that came out of the quarantine crisis.
But in the last few months there has been more consolidation within providers, so the cell service battles are getting more serious. Verizon has achieved great success among its users because they they tend to be very loyal. Today we examine the opportunities for Verizon stock within the new prism.
VZ Stock Chart Is Constructive But Has Problems Above
First, let’s get the technical comments out of the way and interpret what the charts are telling us. There is a steady stream of bids but also tremendous band of resistance above.
The Nasdaq has already made new highs, the S&P 500 is blazing trails as we speak, yet VZ stock is still stuck below a cluster of resistance that it hasn’t pierced for 20 years.
The good news is that the bulls have made tremendous headway for more than a decade. The stock has been setting higher lows consistently as it attacks this roof around $62 per share. Given enough time the breach will happen and the bulls will overshoot higher for another $10 from there.
So far, Verizon has maintained a reasonably low level of promotions. This is a tall order, especially during the era of the flamboyant leadership of T-Mobile (NASDAQ:TMUS). That company took the art of incentives to a whole new level, and usually this benefits only the consumers. Industries that do that usually erode margins to the bare bones and suffer on their bottom lines. But in this case they are trying to offset this through mergers and acquisitions so there would be fewer war fronts.
It is almost impossible for Verizon to stay competitive without joining the promo wars. I am loving this from the consumer perspective but it’s somewhat of a longer term worry for VZ stock.
But for now it still works.
The Competition Is Heating Up with Fewer Players
The dangerous part is that T-Mobile has become much larger with its acquisition of Sprint. This brings more focus from it onto Verizon. This is not the old AT&T (NYSE:T) monopoly of a few decades ago, so that is why we now get perks like free Netflix (NASDAQ:NFLX) and Disney (NYSE:DIS) streaming with our cell plans. Every time one of the providers offers a new type of promotion, the others have to follow suit.
Nevertheless, the fundamentals on VZ stock remain strong. Management has earned the benefit of the doubt as they have rarely given investors reasons to sell from their own mistakes. Valuation is reasonable with a 12.7 trailing price-earnings ratio and only 1.9 price-to-sales. There is little froth built into the stock, so in theory every dip is a buying opportunity.
Investors Can Own Verizon Stock With Confidence
Those who own the shares should feel comfortable about that opportunity. And those who are thinking about buying VZ stock can expect good things from their commitment. But it is important to note that there is extrinsic risk to all stocks, and it comes from the weakness of the economic outlook. The world is currently reopening after a major global shut-down and it’s not likely to go very smoothly everywhere. The recovery could be a slog. Therefore, exercise patience.
The U.S. consumer is still waiting for politicians to extend the stimulus program, but that’s not going to happen for another two weeks at least. There could also be a consumer cash flow problem from the end of the forbearance programs. This could impact the disposable income available for cell phone bills.
This is all to say that chasing VZ stock in moderation is a better idea than loading up all at once.
Enjoy the Fringe Benefits
In spite of it being good to own, VZ stock is not flashing an obvious imminent upside opportunity. But it gets more exciting since it also pays a 4%-plus dividend while investors wait for the capital appreciation. This is important because there is hardly any yield anywhere from fixed income assets and the central banks made sure of that. Those who seek investments in bonds are now forced to buy stocks like Verizon.
Overall, owning Verizon stock for the long-term is still a solid investment thesis. I wrote about the value of investing in VZ stock in May of 2019 and the stock is still at about the same levels now. But the trips it took since then were nauseating. What seems to be a boring scoreboard is definitely far from it.
Nicolas Chahine is the managing director of SellSpreads.com. Join his live chat room for free here. As of this writing, he did not hold a position in any of the aforementioned securities.
