This morning telecom stocks are moving and today we focus on Verizon (NYSE:VZ). The headline today is that the deal between T-Mobile (NASDAQ:TMUS) and Sprint (NYSE:S) might finally be done. All of them are moving higher on the headline. But my focus today is on VZ.
VZ stock has short-term support and long-term opportunity. When the market stabilizes, it will make new highs.
Last year, when the stock markets were having their Christmas crash, VZ stock faced an important zone. Luckily it held the $55 per share zone and averted disaster. This has been a point of interest for bulls and bears since 1999. Usually pivot points this old are sticky enough and provide solid support on the way down.
And therein lies the basis for the bullish thesis going forward. VZ bulls have solid footing on which they can continue building higher price.
Conversely, VZ stock also has potential resistance above. Shorter term, technically VZ is trading between a base of $55.75 and $58.50 — where the bulls face their first line of resistance. But challenges are also the potential opportunities.
If VZ closes above this resistance then it would serve as a trigger to target the March 28 drop. When price crosses above prior stall zones it invites momentum buyers especially when they have a solid base below.
The Verizon fundamentals provide stability upon which buyers can count. It sells at 14 trailing P/E and pays a 4.2% dividend which is cheap in absolute and relative terms. VZ and AT&T (NYSE:T) are both at least 40% cheaper than TMUS, and this is before counting the fact that TMUS does not pay any dividends.
So Verizon bulls are strong hands because they have value and dividends to help them sit through tests. In short, with help from the technicals and the fundamental, the bears will need geopolitical headlines or black swans to break the bulls. Even then, both of these would be temporary effects as they don’t change the long-term story for VZ.
The Long-Term Story for VZ
The globe has gone mobile. Companies like Salesfore.com (NYSE:CRM), Amazon (NASDAQ:AMZN) and Netflix (NASDAQ:NFLX) shaped the future that is unfolding now. Salesforce.com popularized the cloud, AMZN built it and NFLX proved that the world wants to consume media online. Streaming is easiest on smart phones and therein lies the biggest opportunity for Verizon stock.
The launch of 5G, set cell providers to profit for decades to come. The advances in technology means that we will build upon it at a faster rate going forward. This is creating new breakthroughs faster than ever so this migration to the cloud and online media an exponential process that is not reversible. There are a lot of people on the planet and they all need the mobile phone providers. Whether we continue to call them phones or not, Verizon has a front seat for the show.
Verizon has a proven management team that built an excellent reputation among its clients. This is similar to Apple (NASDAQ:AAPL) die-hard users. Every VZ user I know swears that they will never leave them. If churn is not an issue then the company can focus on growth.
So from a tactical trading perspective, any dips for the short term should be opportunities to buy it. Furthermore, those who want to own it for the long term can ignore the negative reactions to interim headlines like we are having these days. The U.S. negotiations with China will linger for months and eventually they too shall pass and value stocks like VZ will continue to grow wealth.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on Twitter and Stocktwits.
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