The days of seeing Verizon Communications (NYSE: VZ) as just a phone company are long gone. It’s now a telecom giant with the biggest network of wireless customers, and it’s expanding its fiber-optic network and television services to increase value for customers.
Increasing competition in the U.S. wireless game has taken a toll on market leader Verizon, however, shrinking its stock price. But that offers an opportunity for value investors. While many Verizon subscribers jumped ship in early 2017 in favor of rivals’ unlimited plans, Verizon reversed that trend by finally launching its own unlimited deal, which helped it add 1.2 million net customers in the fourth quarter.
The super-fast wireless 5G network that Verizon is building out right now will drive the next phase of its growth, allowing consumers to connect home wireless devices to Verizon’s network, enabling self-driving cars and perhaps even making virtual reality a mobile platform. Verizon also started its Oath media business, including the assets of internet acquisitions AOL and Yahoo. Offering both connectivity and content could prove to be a winning combination for Verizon as it looks for revenue streams beyond wireless.
Telecommunications isn’t a high-growth business, but it’s a valuable and profitable one to be in for the long term. Verizon’s dividend recently yielded about 5 percent. (The Motley Fool owns shares of and has recommended Verizon.)
Ask the Fool
Q: I found a stock that’s priced at less than $1 per share, but it pays out more than $1 per share in dividends. Good buy? Bad idea? – E.P., Sacramento, California
A: Bad idea. Stocks trading for less than about $5 per share are penny stocks, which tend to be volatile and risky.
With dividend payers, you want them to be generating more in earnings per share than they’re paying out in dividends so that their payouts are sustainable and unlikely to be reduced or eliminated. Hefty dividends are great, but a company needs to be strong enough to sustain them.
Q: A stock I own nearly tripled in value before pulling back, leaving me with a double. Should I have sold it when I could have reaped that big gain and rebought it when the price dropped? Or am I right to just wait, hoping to gain more in the long run? – O.M., online
A: If you knew that it had temporarily peaked and was about to fall, then selling would have been a good move. But you can’t know precisely what a stock is going to do.
When you buy a stock, you should have an idea of the degree to which it’s undervalued. Ideally, you’ll have estimated its intrinsic value. If the stock surges well beyond that value, then sell, because it’s reasonably likely to fall from that point. If a stock keeps rising within reason, though, and the company remains healthy and growing, then over time its intrinsic value will rise, too – and you can do well by just hanging on for the long term. Measures such as P/E (price-to-earnings) ratios can give you a rough idea of valuation.
My dumbest investment
So far, the dumbest investing move I’ve made has been investing in Teva Pharmaceutical Industries, Israel’s largest drug manufacturer and a specialist in generic drugs, right before its recent freefall. (I lost around 50 percent of my $10,000 investment.)
Despite this, I decided to dig in and hold on. I still think it will eventually rebound, at least to more than I paid for it. I’m hoping the market overreacted, its new management will be effective and it will get some new medications approved. – M.L., online
The Fool responds: Teva has certainly been struggling recently, but plenty of investors remain hopeful about its future, some because they believe that generic drugs will be taking market share from non-generics in the coming years. You shouldn’t be invested in the company, though, if you don’t believe in its future – and especially if there are other stocks that you believe will perform better from this point on. Don’t think about holding on just to gain back your losses. You can always do that via stocks in which you have more confidence.
Teva is still facing challenges, such as a heavy debt load because of acquisitions. It has also eliminated its dividend. On the other hand, it’s still generating a lot of cash and has cut costs significantly, in part by shrinking its workforce. One interesting development is that Warren Buffett’s company has recently been buying shares of Teva.
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