The Motley Fool: Calling Verizon

The Motley Fool Take

With each passing day, we become more and more tethered to mobile devices. That also translates to greater demand on wireless networks to meet our data demands at faster and faster speeds. That, of course, requires immense amounts of capital spending, and few companies in the wireless business generate the kind of cash that Verizon Communications (NYSE: VZ) does to develop the next big thing in wireless: a 5G network.

Over the trailing 12 months, Verizon has generated more than $28 billion in cash from operations, allowing it to reinvest in its business while leaving plenty left over for its generous dividend, which it has increased regularly over the past decade.

While Verizon has made some slightly head-scratching acquisitions, such as its purchase of AOL and a bid for Yahoo! to boost advertising revenue, the real cash-generating workhorse of this company is its wireless subscriptions.

Verizon did miss some subscriber targets in its most recent earnings report, but that was somewhat expected as competition among wireless providers ramps up. As Verizon starts to differentiate itself with its 5G network - expected to be online in 2020 - it should continue to reward shareholders.

With its stock recently sporting a price-to-earnings (P/E) ratio near 15 and a dividend yielding 4.6 percent, Verizon is worth the consideration of long-term investors. (The Motley Fool has recommended Verizon Communications.)

Ask the Fool

Q: How often should I review the stocks in my portfolio? - P.M., Walnut Creek, California

A: Ideally, follow the companies at least every three months, when quarterly and annual reports are issued. Read through the reports and press releases, which you can usually find at company websites. See what stories on them you can find via Google News, too.

With big, established, long-term holdings, you can get away with checking in less often. Younger, smaller outfits are likely to fluctuate much more than big blue chips, but even blue chips can have sharp moves. The more you know about your holdings, the better decisions you’ll likely make, and the better your portfolio’s performance is likely to be.

Q: What are “tech stocks”? - H.G., Warsaw, Indiana

A: A surprising number of companies use a lot of technology as part of their operations. Financial companies, for example, process billions of electronic transactions each year using computers. Energy companies use technology for purposes such as finding oil and generating power from sunlight and wind. Retailers use technology to keep track of inventory and manage logistics - with some even employing robots in warehouses. Even insurance companies are using the latest technologies such as Big Data to improve their actuarial forecasting.

When investors talk about “tech stocks,” though, they are typically referring to computer- and software-related companies.

It’s easy to assume that tech stocks are likely to be fast growers, but that’s not always true. Many technology-heavy companies struggle or go out of business. The tech-heavy airline industry, for example, has stung many investors over the years. Instead of looking for promising tech stocks, it’s better to just evaluate each company and industry on its own merits.

My Dumbest Investment

Early on in my investing career, I saw information from two different (but unfamiliar) sources about a biotech company that was “poised to revolutionize the treatment of - and potentially cure - diabetes.” (That’s paraphrased, but you get the idea.) The shares were around $6.50, so I bought 1,000. I just knew I would be retiring early thanks to this amazing biotech company.

Well, the bottom fell out a few months later, with the shares losing something like three-quarters of their value. I hung on, thinking maybe the stock would come back. I think the shares were at $0.04 when I finally sold.

I had never before heard of the scam where someone buys a ton of shares in a failing company, issues rave guidance, waits for a bunch of suckers to jump in and send the price up, and then sells at a profit before the stock falls back. I no longer pay attention to any investment information from unfamiliar sources. I learned the hard way to make sure my investment advice comes from reputable sources. - T.R., Houston

The Fool responds: You fell for a classic pump-and-dump scheme. The scenario you describe is common with penny stocks, where investors get excited about the hype over some company’s amazing potential - such as its being on the verge of curing cancer or discovering gold. You’re smart to find and stick to sources you trust.