Why Is Warren Buffett Buying This Stock?

Here's why this billionaire is making a big bet on wireless.

Jun 16, 2014 at 7:30PM

Warren Buffett is easily one of the most followed investors. However, as a buy-and-hold investor, Buffett has little turnover in his Berkshire Hathaway portfolio. Yet he did make a new investment last quarter. Berkshire added 11 million shares of Verizon (NYSE:VZ) to its portfolio last quarter. In the grand scheme of Berkshire's entire portfolio, that's a relatively small position. 

But a couple of other major billionaire hedge funds were also adding Verizon to their portfolios last quarter. These included John Paulson's Paulson & Co. and Dan Loeb's Third Point. So what has these hedge funds interested in the U.S.'s largest wireless provider by subscribers?

The Verizon appeal
Firstly, the telecom pays a healthy 4.3% dividend yield. Buffett might be interested in Verizon because it got approval to buy up the other 45% of Verizon Communications from Vodafone that it didn't already own.

The other big opportunity for Verizon is for it to follow AT&T (NYSE:T) into the pay-TV market. AT&T is buying up DirecTV. That leaves the No. 1 pay-TV provider Dish Network (NASDAQ:DISH) without a "dance partner." Dish could have looked to acquire T-Mobile, but with Sprint getting closer to a buyout of T-Mobile, that has become unlikely.

Citigroup believes Verizon could end up buying Dish or Dish's spectrum. It notes that Dish as a whole would provide "scale in the video business and a path to leverage its investments in IPTV and content delivery networks to evolve the DISH video biz into a national over-the-top (OTT) video provider."

The pay-TV market  
With the addition of DirecTV, AT&T will become the top provider of pay-TV and mobile phone services in the U.S. This is the latest move by AT&T in its attempt to gain ground on Verizon. DirecTV will allow AT&T to compete more effectively with Verizon in the video space.

AT&T's acquisition of DirecTV, as well as the deal proposed by Comcast for Time Warner Cable, will give it more clout when it negotiates licensing deals with broadcasters.

So what's Verizon's answer? It has said that it doesn't need an acquisition. However, spectrum is a priority. And it's no secret that Dish Network has a lot of spectrum.

Dish Network has been one of the most aggressive companies in the industry when it comes to spending billions of dollars on wireless spectrum. There's only so much wireless spectrum available, thus, Verizon could find value in its spectrum. Dish Network's CEO, Charlie Ergen, is a smart guy. Monetizing his company's spectrum assets likely sits at the top of his list.

The consensus on Wall Street was that AT&T should have bought Dish. After the announcement that AT&T would buy DirecTV, shares of Dish actually rose more than those of DirecTV. But as the deal for DirecTV looks imminent, Dish's shares have retreated. Dish is now flat year to date while DirecTV is up 20%.

Bottom line
AT&T pays a 5.3% dividend yield, while Verizon yields 4.3%. Both telecoms trade at a P/E of just under 13 based on next year's earnings estimates. While AT&T has the superior dividend yield, Verizon is the leader in the U.S. market. If Verizon makes a play for Dish Network, this would position the telecom giant as a leader in wireless spectrum. Investors who are looking for an investment in the telecom space should have a closer look at Verizon.

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Marshall Hargrave owns shares of Citigroup. The Motley Fool recommends Berkshire Hathaway. The Motley Fool owns shares of Berkshire Hathaway and Citigroup. 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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