Cord-cutting and smartphones are the keys to Verizon's
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 (
) 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 (
), 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 (
), 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
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.