Telecom's Big Drop Presents Buying Opportunity

Verizon and AT&T have been a drag on the Dow Jones Industrial Average recently but that presents an opportunity for investors.

Apr 24, 2014 at 3:30PM

The Dow Jones Industrial Average (DJINDICES:^DJI) fell flat today and is lagging other indexes that are benefiting from Apple's sharp rise today. On an economic front, new unemployment claims rise to 329,000, but durable goods orders were up 2.6%, so the signals were mixed.

One of the biggest reasons the Dow went nowhere today was another decline by its two big telecom companies, Verizon Communications (NYSE:VZ) and AT&T (NYSE:T), which can't seem to impress investors with their results.


Verizon Wireless stores like this one weren't as busy as investors expected in the first quarter.

Why Verizon and AT&T are dragging down the Dow
It seems that wireless giants Verizon and AT&T are in a no-win situation these days. If they lower prices to compete in an escalating price war, they're sacrificing margins for growth, and if they don't cut prices, they're giving up growth to hold high-margin customers.

Thus far, AT&T has been participating in the price war and won the battle for subscribers in the first quarter. But as you can see below, Verizon Wireless is winning the profitability battle and giving up new subscribers to do so.


Verizon Wireless


Wireless subscriber additions


>1 million

Wireless operating income

$7.3 billion 

$5 billion 

Wireless operating margin



Source: Company earnings releases.

Today, investors are disappointed in the growth Verizon delivered and the $0.84 per share in adjusted earnings it reported was $0.03 below estimates. This follows AT&T's report earlier this week that showed strong growth on the top and bottom line but didn't come with increased guidance.

When you take a step back and look at both of these businesses, it's hard to find too many flaws, whether there's a price war or not. Verizon and AT&T are both trading at 13 times this year's estimates, and they pay 4.4% and 5.1% dividend yields, respectively. And let's not forget that they grew revenue 4.8% and 3.6%, respectively, last quarter.

These are far from dying businesses, and with a wide network lead over the competition, they're both in great position for the long haul. The market may be selling off today, but I think this is a great buying opportunity for investors willing to buy and hold for the long haul. The wireless business as a whole is only growing, and these companies will continue leading the way.

Content delivery is about to change
Cable is going away slowly and companies like AT&T and Verizon want to fill the void. The good news is, there's $2.2 trillion out there to be had for companies who own and deliver content. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple. 

Travis Hoium manages an account that owns shares of AT&T; and Verizon Communications. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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