Better Buy: AT&T or Verizon Communications?

In a new Motley Fool series, we pit two stocks against each other on five criteria to determine the better buy.

Today's matchup is AT&T (NYSE: T  ) vs. Verizon Communications (NYSE: VZ  ) . Using five short-of-scientific-but-carefully chosen criteria, let's determine which is the better buy according to the numbers:

 

Factor

AT&T

Verizon Communications

Cheapness

(P/E ratio)

11.7

22.6

Growth

(5-year growth rate)

9.1%

-1.7%

Operations

(net margin %)

10.19%

3.39%

Balance Sheet

(debt/equity ratio)

.75

1.45

CAPS Rating

(scale of 1 to 5 stars)

3 Stars
4 Stars

Round 1: Cheapness

Advantage: AT&T. Cheapness is determined by P/E ratio. The lower the better. Be careful of earnings near zero that skew the ratio, one-time gains and losses, and pasts that aren’t indicative of futures (the more dynamic the industry, the more this is true).

Round 2: Growth

Advantage: AT&T. Growth here is the trailing 5-year EPS growth rate. This trailing earnings growth helps put notoriously-optimistic Wall Street projections in perspective.

Round 3: Operations

Advantage: AT&T. Net margin percentage shows how efficiently a company turns revenue into profit. The more similar the business models, the more relevant the comparison.

Round 4: Balance sheet

Advantage: AT&T. As with net margins, the debt to capital ratio is most relevant in comparing companies in similar industries. In this battle we give the nod to the lower-debt company, but attention should also be paid to the cost of debt, interest coverage ratios, and the stability of the business (the more stable a company’s operations, the more debt it can safely carry).

Round 5: CAPS rating

Advantage: Verizon Communications. A company’s CAPS rating is our community’s opinion of the stock. You can get more information on your stocks -- and our community’s opinions of those stocks -- by clicking over to CAPS area.

Each of these five rankings need more context -- like, how these companies stack up against key competitors such as Sprint (NYSE: S  ) and Vonage Holdings (NYSE: VG  ) . But these basic numbers suggest that AT&T is a better buy. What do you think? Let us know in the comments section below.

No individual person selected the stocks in this article, so there is no author to disclose an interest in them. Since this article was automatically generated by identifying the stocks loved both by the CAPS community and by buyers in today’s market, it is possible that Motley Fool personnel (and even The Motley Fool itself, through our Million Dollar Portfolio, Motley Fool Pro, and Ready Made Millionaire services), have positions in these stocks. We thought you'd like to know that. You can learn more about The Motley Fool’s disclosure policy here.


Read/Post Comments (5) | Recommend This Article (26)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 05, 2010, at 1:17 PM, cdavis993 wrote:

    I have been buying both as I could not figure out if either had an advange over the other and I did not want to put all my eggs in one basket.

    I primarily bought these stocks for their dividend, although I think their stock price will go up with the general market.

    Both companies are "TOO BIG TO FAIL".

  • Report this Comment On March 05, 2010, at 1:55 PM, richvermil wrote:

    I own both of these stocks and niether has been performing very well for me. I guess I am losing less with VZ than with T. If not for the dividends, there is not much to recommend them in the short term.

  • Report this Comment On March 05, 2010, at 2:23 PM, jc09058 wrote:

    Like those before me, I own both. Originally pick AT&T back in 91 and later bought into Verizon in 02. At the time of the purchase of Verizon, it was an up-and-comer that was making considerable headway against AT&T. At that point in time, I could not decide who was the better and bought enough to equal each other out. At certain points in time between 02 and now, one then the other would take the lead in my mind but I could never feel comfortable selling the other.

    Here it is 2010 and I still don't have an answer to which is the better company. Which leaves wondering what other third party and/or innovation is going to blow one or both out of the water.

    Anyone else have any other thoughts on this one?

  • Report this Comment On March 05, 2010, at 2:34 PM, TheRusty wrote:

    Someone once said quality does not come cheap. In this case, VZ costs more because it has more potential for market dominance. Vz has laid down some big bets on FIOS, 4G, spectrum and Alltel that could pay off handsomely in the future ... or lay a big fat goose egg. VZ took their eyes off the ball in 4Q09 and the market has pushed the stock down because growth prospects are questionable. Buy VZ now on the dips if you have a stomach for risk. If you believe that Vz's bets won't pay off, buy T because they operate better. The market has already spoken in favor of Vz's strategy. Buy T if you think you're smarter than the market.

  • Report this Comment On March 05, 2010, at 2:56 PM, AaronGaz wrote:

    Why not buy VOD, then you get half of VZ wireless and all of the emerging markets.

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