Verizon is down possibly because of the news that the FCC’s decision back in December to reverse the net neutrality rules is expected to be published on Thursday and people believe state attorneys general and advocacy groups will sue in a bid to block the order from taking effect.
I believe this is a golden opportunity to gain shares into a solid business. Regardless of the FCC rules, Verizon will continue to have strong earnings.
Let’s say Verizon has $6 EPS with a long-term annual growth rate of 6%, that means the shares are currently trading roughly at a 30% discount.
Also, Verizon has P/E of 6.6x and has an earnings yield of 7.62%.
This company’s shares are also owned by Warren Buffett. This is a good company to hold long-term.
I am not even factoring growth potential for its undervalued assets in AOL, Yahoo and other online properties I believe will add considerable value to shareholders.
Also, at the current price range, the dividend yield roughly 4.87%. If you are greedy and want a 5% dividend yield, you could hold out for the price to drop to $47.2, but I believe that would be a mistake.
People are also worried about rising interest rates and companies like Verizon, telecommunications and utilities, get hurt by rising interest rates. This is because people buy telecommunication and utility stocks for their dividends and when interest rates are rising, then dividend yields have to increase to make them more appealing. Unfortunately, the main way to make dividend yields more appealing is for the stock price to decrease.
I believe the rapid rise in yields has slowed down and the bond market has priced in too many rate increases by the FED. Besides, you should not use interest rates as your measuring stick against Verizon or any non-financial company. Look at its earnings and growth potential.
Disclaimer: I bought Verizon stock today at $48.50.