Source: PaxForex Premium Analytics Portal, Fundamental Insight
When Verizon spent $52.9 billion in March 2021 to acquire a C-band spectrum (to be used for 5G networks), many investors thought the move was reckless. 5G spectrum was needed, but the huge cost was mind-boggling for what could have been a marginal increase in network performance for smartphones.
Earlier this month, Verizon demonstrated why it made the investment in 5G by announcing that 5G would be available to 100 million people this month. But it's not just about faster smartphone service. Verizon also announced that it is offering 5G Home service for just $50 a month in an effort to replace the physical Internet connection that has been standard for decades. This could be a huge boost to telecom stocks, which have been stagnant for most of the last decade.
Cellular wireless networks have been getting faster for more than two decades, but have never been able to match the speed of telephone, cable, or fiber-optic lines. 5G is changing that by offering speeds that can beat cable Internet, at a lower cost.
When Verizon won its 2021 spectrum auction, executives said it could provide 50 million people with fixed wireless coverage by the end of 2025, opening up a potentially large market for home Internet. But that deadline seems to have been surpassed by a wide margin, with executives saying it would reach 100 million people in January 2022.
Let's use the real situation as an anecdotal example. Michael has been eyeing 5G broadband for years because he pays $100 a month (plus taxes and fees) for internet from Comcast, with no real alternative. When 5G was turned on in his neighborhood, he was suddenly able to get faster speeds from his iPhone hotspot than from Comcast's cable line. For him, as for many others, switching to Verizon at those speeds is no big deal.
So we can conclude that 5G home Internet will be a blessing for Verizon, but it could also be a big problem for cable companies like Comcast and Charter Communications. The cable companies are faced with users abandoning their cable subscriptions in favor of streaming, but they have largely been able to increase their broadband revenues because of the need for fast Internet.
Having a wireless alternative, or several alternatives in some places, will be a big threat to the cable companies. They won't have price power in broadband, and in places where there is an agreement with the municipality to be the only cable provider, they now have real competition.
The addition of home Internet could also give Verizon an incentive to bundle several services together. Smartphone and home Internet would combine well with streaming services, which could be a new "triple play."
From an investment standpoint, there's a lot to like about Verizon. The company has been steadily generating cash flow, and if 5G Home becomes an additional source of growth, it could be a slow and steady growth stock.
At a low price of 10 times forward earnings and a dividend yield of 4.8%, this is a valuable stock with growth potential. The $136.7 billion debt is certainly a concern, but the stable performance of this telecom giant makes the risk well worth the reward at today's price.
As long as the price is above 49.80, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 53.70
- Take Profit 1: 55.20
- Take Profit 2: 56.30
Alternative scenario:
If the level of 49.80 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 49.80
- Take Profit 1: 47.90
- Take Profit 2: 46.80
