Why Is Warren Buffett Buying This Stock?

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.

Your cable company is scared, but you can get rich
You know cable's going away. But do you know how to profit? There's $2.2 trillion out there to be had. 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. 

 


Read/Post Comments (0) | Recommend This Article (3)

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.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2995293, ~/Articles/ArticleHandler.aspx, 11/27/2014 12:45:56 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement