Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Crazy Stocks

Verizon is making a lot of Money

Verizon Communications Inc. (NYSE: VZ) is a classic value investment because it is a company that makes a lot of money that nobody thinks about. More importantly, Verizon is very cheap right now – its shares were trading at $52.01 on July 27, 2018.

If you like income, you’ll love Verizon because it reported an operating income of $7.349 billion and a net income of $4.545 billion for 1st Quarter 2018. That was in addition to a gross profit of $18.517 billion.

Best of all, Verizon reported revenues of $31.772 billion on March 31, 2018. Those revenues grew by 6.57% between 1st Quarter 2017 and 1st Quarter 2018.

Verizon has a lot of Cash

The value at Verizon is apparent because it has a lot of cash. Verizon generated $2.096 billion in free cash flow and $6.648 billion in operating cash flow during the 1st Quarter of 2018.

Although the company was not saving at lot of that cash, it reported just $1.923 billion in cash and equivalents on March 31, 2018. That indicates Verizon has to spend most of the cash it takes in maintaining its vast infrastructure.

This makes Verizon a lot like a railroad, a company that generates a lot of cash on a regular basis but cannot keep that cash. Despite that Verizon managed to accumulate a lot of value in the form of $264.516 billion in assets.

Unfortunately, Verizon has accumulated quite a bit of debt: $119.057 billion on March 31, 2018. The good news for investors is that Verizon generates enough in revenues to easily pay off those debts.

The Value Case for Verizon

The value case for Verizon is quite simple the company has a lot of customers that pay a subscription every month.

Around 150.48 billion people subscribed to its wireless service in the United States in 4th Quarter 2017, Statista calculated. That made Verizon the largest wireless provider in the US. Number two was AT&T (NYSE: T) which had 143.83 million wireless customers.

Each of those customers has to pay a subscription each month to keep service which adds up to a lot of float. Float is a steady stream of cash, usually from subscriptions or premiums – that a company can tap at any time. The float covers the cost of Verizon’s operations and allows it to expand.

Verizon is able to make lucrative acquisitions like Yahoo! because of all the float. It is an extra source of cash similar to the utilities, newspapers, and insurance companies that Berkshire Hathaway (NYSE: BRK.B) owns.

Warren Buffett can tap the float from utility bills, newspaper advertising and subscriptions and insurance premiums to make acquisitions at any time. Verizon can do much the same thing, and snap up bargains when they appear on the market.

A Product that Everybody Needs

Verizon’s float is good because it sells a product that almost everybody uses these days cellphone service.

I am no different. Like most Americans; I have a phone in my pocket, and I send Verizon $100 every month to keep that phone connected to the wireless system.

Wireless service is a great product because most people can afford it. Even the poorest individuals can figure out how to pay for it.

More importantly, a lot of people need wireless service for their jobs or their families. A great many Americans that lack landlines, cars, and sometimes homes still have phone service.

Best of all Verizon has an easy way to force people to pay bills. It can simply cut off service or threaten to.

A Value Investment for Today

Verizon is a classic value stock for another reason – it is neither sexy nor popular. Even though almost everybody uses its products, few of them think about Verizon.

That keeps the stock price low, and shields the company from media attention. Verizon is definitely a stock for you if you hate drama.

It is a stock for you if you like dividends. Verizon is scheduled to pay a dividend of 59¢ on August 1, 2018. That was up from 57.7¢ on July 10, 2017. More importantly, Verizon has been paying that dividend every quarter for at least five years.

If you are looking for a good basic value investment for the 21st Century, Verizon Wireless is certainly it. This company makes money, pays, and decent dividend and it is reliably.

Most importantly, Verizon has a very lucrative business that is not going away. Americans love their smartphones; because of that simple fact, Verizon is most definitely a value investment for today.