Sunday, October 20, 2013

1 Underrated Reason Why Verizon Stock Looks Great Now

Mobile data use is on the rise, and that's good news for Verizon (NYSE: VZ  ) stock. The carrier's shares are slightly ahead of the S&P 500 so far this year.

There's good reason to be believe we'll see further gains in the months and years ahead. Verizon activated 25% more iPhones in the first quarter and 7.2 million smart handsets overall thanks, in part, to surprisingly strong Windows Phone sales. Meanwhile, wireless industry analyst Chetan Sharma says U.S. revenue from mobile data grew 14% to $21 billion in the first quarter. All signs point to greater demand for Verizon's gear and services.

But investing is also a game best played in context. How does Verizon stock compare to peers AT&T (NYSE: T  )  and Sprint Nextel (NYSE: S  ) ? Here's what the numbers say:

Key Statistics Verizon AT&T Sprint Nextel

Current share price

$48.89

$34.71

$7.01

Shares outstanding

2.86 billion

5.38 billion

3.02 billion

Market cap

$143.2 billion

$189.6 billion

$21.1 billion

Trailing P/E ratio

123.2

26.88

Not available

PEG ratio

1.71

2.25

(1.61)

Gross margin

60.8%

56.7%

41.6%

Cash from operations

$33.06 billion

$39.53 billion

$2.96 billion

Sources: S&P Capital IQ and Yahoo! Finance.

And here's what Fools say, going by the data available in our CAPS investor intelligence database:

CAPS Category Verizon AT&T Sprint Nextel

CAPS stars (out of 5)

Top Tech Companies For 2014

****

***

**

No. of CAPS ratings

4,926

5,878

2,496

Bullish CAPS ratings

4,627

5,421

2,023

Bearish CAPS ratings

299

457

473

Bull ratio

93.9%

92.2%

81%

Source: Motley Fool CAPS.

Fools rate Verizon tops among carriers for a variety of reasons, including optionality in the business. "The top cell phone network provider and their purchase of Hughes Telematics was a wise move given the personal auto insurance potential use of telematics universally," writes CAPS investor bccleveland.

Verdict: Verizon stock is a buy
Skeptics will note that telecom hasn't exactly been a great business of late. T-Mobile has all but eliminated long-term contracts, which also threatens subsidies. Consumers who want the latest gear may soon have to pay up for it in ways they haven't previously. Handset sales could dip as a result.

Or not. Telecom is a tough business with a tumultuous history. I'd rather bet on Verizon's ability to navigate treacherous waters while collecting (and reinvesting) a quarterly dividend that yields 4% as of this writing. As such, I've taken a long position in my CAPS portfolio.

Now it's your turn to weigh in. What you do with Verizon stock right now? Let us know what you think of Big Red's business, and whether you'd buy, sell, or short at current prices, using the comments box below.

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