Cord-cutting and smartphones are the keys to Verizon's stability

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Cord-cutting and smartphones are the keys to Verizon's stability

Bobby Raines 10/07/2013

Investors love to win. Making money is really the only reason anyone plays the stock market game, but in uncertain times, it may be even more important to investors not to lose money.

While there are no guarantees in life or investing, one thing to look for when selecting investments is to find companies that people can't live without. This isn't always foolproof of course. It wasn't that long ago that answering machines, newspapers and music stores were a regular part of most people's lives. Technology and tastes change, leaving some companies on the outside looking in while others succeed. Another important thing to look for in your search for stability is size. A small company can be seriously damaged very quickly by the emergence of a single competitor or even a relatively local weather event.

So what kind of company sells something that everyone needs and is going to need for a while and is also big enough that new competitors or other events won't hurt it?

Utilities generally fit this description, but some utilities are better than others. Electric companies certainly seem like they're going to be around for a while, and it is hard to imagine a new company appearing to put another electric utility out of business. The issue for electric companies is that they face fluctuations in demand and fuel costs as well as increasing regulation from the government.

What we're looking for is a company that doesn't see a lot of change in demand or face a lot of changes in costs on a regular basis. What kind of company fits this description?

I'd suggest Verizon ( VZ ) as a company that checks all of those boxes. Verizon is a large provider of land-line telephone services and is also the company's largest wireless carrier through Verizon Wireless, which is currently a joint venture with Vodafone ( VOD ), but Verizon recently agreed to acquire the balance of the company for $130 billion.

The company has more than 21 million land-line phone customers and close to 15 million customers for its fiber-optic broadband service. While the land-line business has stopped growing, the company's broadband services are still adding customers, as more and more people decide they need high-speed internet connections in their homes. Just like telephones became ubiquitous in the early part of the twentieth century, high-speed internet is becoming a must-have service in the twenty-first century. High-speed internet is taking pay television's place as an essential service as an increasing number of people "cut the cord" and ditch their cable or satellite plan in favor of streaming service like Netflix ( NFLX ), Hulu, Amazon Prime and others.

Verizon is slowly trading land-line phone customers for internet customers. That's OK though because the company's wireless business is the largest in the U.S. Verizon Wireless added 941,000 subscribers in the second quarter and it seems like many of those subscribers are adopting another newly ubiquitous technology, smartphones. The company said revenue per subscriber was $152.50 per month as of June 2013, which was a 6.4% increase from June 2012 as the number of the company's subscribers with smartphones rose to 64%.

At some point, the adoption of smartphones will start to slow down, but that doesn't mean Verizon's revenue growth will necessarily slow down at the same time. As people use their phones more and more and as phones grow more capable, the amount of data used per phone will increase, which should allow Verizon to sell more expensive plans to many of its subscribers. 


Chart courtesy of stockcharts.com

Investors who want to take advantage of Verizon's stability in the near term could consider a December 43/45 bull-put spread for a 48-cent credit. That's good for a 31.58% return, or 153.68% on an annualized basis (for comparison purposes only) so long as the stock is above $45 at December expiration. That means the stock can go up, stay flat, or even decline by about 4% and this position will still return a full profit.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

Originally published on InvestorsObserver.com


This article appears in: Investing , Options

Referenced Stocks: NFLX , VOD , VZ

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