What happened
Shares of U.S. telecom giant Verizon (VZ 1.17%) fell 7.5% in trading on Monday after a series of articles in The Wall Street Journal highlighted the lead in cable sheathing that telecom companies used decades ago. Some analysts downgraded the stock, but the market sold before we got any details from the company.
So what
The report highlighted lead in cables used primarily by AT&T (T 1.02%) but also brought Verizon into the equation. AT&T has more legacy assets that reach people's homes, while Verizon's business has been more focused on wireless assets for more than two decades.
What wasn't quantified was any lead contamination levels, liability for either company, or what the mitigation might be. Morningstar said that they believe any liability would be very limited because the telecom industry has put best practices in place to protect workers from lead poisoning.
Now what
Today's action is a fear sell-off at its finest. We don't have any evidence of liability or a lawsuit, and yet stocks are getting hammered. Verizon now trades for just 6 times earnings and has a dividend yield of 8.3%. Even if management did face a large fine or needed to cut the dividend, shares would have plenty of leeway to provide value for shareholders.
I think this is a stock that's too cheap to pass up, and we will be paying wireless bills for decades. There are certainly risks and questions for telecom in the future, but the risk is worth the reward with a stock like this.
