Source: PaxForex Premium Analytics Portal, Fundamental Insight

Verizon is frequently viewed to be a classic defensive asset. It owns the largest wireless network in the US, pays a high dividend yield of 4.4%, and its stock trades at a ratio of 11 to forward earnings. The company has also raised its dividend every year for 14 consecutive years.

Nevertheless, VZ has also always underperformed the market. After accounting for reinvested dividends, the company's total yield over the past 10 years has been about 150%. It exceeds AT&T's total return, which is less than 70%, but it is about half of the S&P 500's total return, which is nearly 300%.

Of course, foregoing performance is not a good indicator of prospective earnings, but investors might look at Verizon's past earnings and consider whether it makes more sense to just buy an inexpensive index fund tracking the S&P 500 instead. Let's take a fresh look at Verizon's business and see if its stock is worth buying today.

Verizon has three major advantages. First off, its core wireless business, which is divided into consumer and enterprise markets, serves more customers than T-Mobile and AT&T. Being the market leader, VZ is able to use fewer funds for major marketing campaigns and network improvements.

Furthermore, Verizon didn't bite off more than it could chew by acquiring major pay-TV and media companies, as AT&T did with DirecTV and Time Warner. Verizon almost rolled down the same slippery slope with its failed purchase of Internet assets AOL and Yahoo, but those failures were worth far less than AT&T's missed trial to merge the Internet, pay-TV, and media segments into a vertically integrated business. VZ lately agreed to sell 90 percent of these media assets to Apollo Global Management.

Finally, Verizon's pay-TV business -- which is combined with Fios' wireline and broadband Internet business, which served 13.3 million customers last quarter -- is also much smaller than AT&T's pay-TV segment. It is, therefore, less affected by the "cord-cutting" and the secular shift toward streaming services.

Verizon's strengths make it a better buy than AT&T, but it also has three weaknesses. First, T-Mobile has overtaken AT&T as the second-largest wireless carrier in the United States since its merger with Sprint last year.

Fresh competition from T-Mobile -- which is pushing an "un-carrier" strategy that eliminates contracts, subsidized phones, data coverage fees, charges for early termination fees, and other nuisances -- could decrease Verizon's pricing power and make it increase its marketing spending again.
Second, T-Mobile's 5G network now provides about 33 percent more coverage across the United States than Verizon and AT&T combined. T-Mobile has pulled ahead by using a lower-frequency spectrum that achieves a greater range than the higher-frequency spectrum used by Verizon and AT&T. Verizon's costs could rise as 5G networks expand to equal T-Mobile's coverage.

Taking into account all of the aforementioned, growth-oriented investors may prefer to buy T-Mobile stock, which has risen more than 760% since its public debut nearly eight years ago.
Finally, Verizon's long-term debt has risen sharply over the past decade. The company accumulated most of that debt after Vodafone bought 45% of Verizon Wireless for $130 billion in 2014.

At the end of last quarter, Verizon's ratio of net unsecured debt to Adjusted EBITDA was 2.9. By the end of 2021, the company plans to lower that ratio slightly to 2.8, but high debt could prevent it from making all the investments it needs to get ahead of T-Mobile and AT&T.

Verizon's operating income fell 3% in 2020 as the pandemic limited demand for new phones and its pay-TV and advertising segments fared better. However, spending cuts boosted adjusted earnings per share by 2%.

Analysts anticipate Verizon's operating income and adjusted earnings per share to rise about 4 percent this year as customers buy new 5G devices and switch to new data plans. The sale of Apollo's media assets should also significantly reduce its exposure to the oversaturated digital media and advertising industry.

The company's free cash flow, which rose 32 percent last year to $23.6 billion, should also easily cover dividends as it reduces debt. Simply put, Verizon's business should remain steady for the foreseeable future.

So Verizon is still a worthy investment for those who just want to preserve their capital and outpace inflation, and aren't too concerned about beating the market. However, investors who do a little more homework will probably be able to find more promising stocks or ETFs that regularly outperform the market.

While the price is above 56.00, follow the recommendations below:

• Time frame: D1
• Recommendation: long position
• Entry point: 56.91
• Take Profit 1: 59.80
• Take Profit 2: 60.50

Alternative scenario:

If the level 56.00 is broken-down, follow the recommendations below:

• Time frame: D1
• Recommendation: short position
• Entry point: 56.00
• Take Profit 1: 54.90
• Take Profit 2: 54.30