1 Dirt Cheap Stock To Buy Now

The rollout of 5G technology will transform every aspect of daily living, from taking shopping online to creating entirely new methods of communication. Self-driving or autonomous vehicles are no longer science fiction – they are on the roads today, and they are expected to go mainstream in the not-so-distant future. 

Smart cities are on the horizon, promising a better quality of life for residents, and developments like remote surgery and automated manufacturing are achievable.

The possible applications are limitless due to three significant advantages 5G has over 4G:

• higher bandwidth,
• the reduced lag time between devices and servers (latency), and
• faster speeds… much, much faster speeds.

Companies involved in creating 5G infrastructure have tremendous upside potential – and as smart investors know, buying quality companies with growth prospects at value pricing is the most reliable method of accumulating wealth. As billionaire investing master Warren Buffett put it: 

For the investor, a too-high purchase price for the stock of an excellent company can undo the effects of a subsequent decade of favorable business developments. 

Through his holding company, Berkshire Hathaway (BRK.B), Buffett has invested heavily in Verizon. It is currently the eighth-largest position in Berkshire Hathaway’s portfolio, and the total value of Verizon shares held by Berkshire Hathaway is roughly $8.7 billion. 

With that in mind, Verizon, a leader in the 5G rollout, is one dirt cheap stock to buy now. 

Verizon Announces Record Earnings 

When Verizon (VZ) announced its second-quarter 2021 results, the news was nearly all good.

Over the course of the quarter, consumers flocked to the company for access to 5G, which led to the highest adjusted earnings per share on record.

Verizon leaders increased full-year guidance for wireless service revenue and adjusted earnings per share. That made investors and analysts more optimistic than ever about the company’s prospects – both short-term and long-term. 

Strong sequential wireless revenue growth delivered total operating revenue of $33.8 billion. That represents 10.9 percent growth year-over-year.

More importantly, it shows 5.9 percent growth over the same period in 2019, which is a better comparison given the unique challenges Verizon experienced in 2020.

Net income came in at $5.9 billion, and adjusted EBITDA totaled $12.2 billion. Earnings per share came in at $1.40, and adjusted earnings per share was $1.37 – a new record for the company. 

The increased revenue from wireless – specifically, wireless equipment – is particularly notable because it went up by nearly 48 percent. That happened when customers upgraded their devices to gain access to 5G technology.

To date, only 20 percent of Verizon’s total customer base has made the switch. The suggestion that there is much more wireless equipment revenue to realize in coming quarters led to positive changes in full-year guidance for 2021. 

Verizon Risk Factors

What’s puzzling is that the strong second-quarter results did not result in rising share prices.

That unexpected development created a downward cycle in which investors didn’t buy under the assumption that there were hidden risks to the stock. The reduced buying activity led to lower prices. That further dissuaded investors from adding Verizon to their portfolios, causing share prices to continue their decline. 

However, analysts and industry experts have examined Verizon’s financials and risk profile thoroughly, and the concerns appear to be misplaced. Yes, Verizon has increased its debt. The rollout of 5G infrastructure is expensive, and the company put $52.9 billion into critical components of this effort. That took total debt from last year’s $112.8 billion to a total of $151.9 billion as of June 30, 2021. 

While this is worth consideration – and it should be carefully monitored – for the moment, any concerns about the impact of this debt are likely exaggerated.

Investors avoiding the stock due to debt-related concerns have missed the fact that Verizon is working to pay off this debt as quickly as possible. The total has increased since last year, but quarter-over-quarter, it has gone down. When Verizon reported its first-quarter 2021 earnings, its total debt was at $158.5 billion. 

The debt is a legitimate reason for concern, but few believe it will have a negative long-term impact on Verizon’s results. 

Will Verizon Stock Go Up? 

Verizon is returning focus to its core business, which means some things are changing. For example, the company divested Verizon Media Group in a deal that closed in early September.

Though this change does mean loss of the robust revenue stream the division brought in, Verizon’s management isn’t concerned. The updated full-year guidance takes the divestiture into consideration with the revised – and increased – figures. 

Verizon expects one of its biggest drivers of growth to be Network-as-a-Service. Though the COVID-19 pandemic may be winding down, many of the behaviors consumers and businesses adopted in 2020 are here to stay. Examples include more remote workers, and increased use of e-commerce, at-home entertainment, and telemedicine. 

The company’s focus on delivering a superior Network-as-a-Service experience is delivering intended results. Verizon was recognized for the 16th consecutive time by RootMetrics for having the best overall network performance.

Even more impressive, JD Power named Verizon the leader in network quality for the 27th consecutive time. 

Verizon’s focus on its network technology and its commitment to providing an exceptional customer experience are key to long-term growth. When it comes to this business, quality has a bigger impact on attracting and retaining customers than price. If Verizon continues on this strategic path, it has the potential to dominate this critical market. 

In terms of expected 2021 results, guidance for total wireless service revenue growth is now 3.5 percent to 4 percent. At the end of the first quarter, management indicated total wireless service revenue growth would be “at least” 3 percent. 

Service and other revenue can’t be compared because of the divestiture of Verizon Media, but the company can project adjusted earnings per share. For now, business leaders expect adjusted earnings per share between $5.25 and $5.35 for the year – an increase from first quarter’s projected $5.00 to $5.15. 

Concerns about Verizon’s debt have kept share prices low, which presents a golden opportunity for investors who buy now. Based on the potential of 5G and Verizon’s improved outlook for year-end, most believe Verizon stock will go up, which makes Verizon stock a buy. 

Why Verizon is One Dirt Cheap Stock to Buy Now 

Verizon has demonstrated its ability to deliver strong returns year after year, regardless of market ups and downs. Along the way, it made shareholders a priority with higher-than-average dividend payouts that have increased each year since 2007. The most recent increase was announced in early September 2021 – a boost of 2 percent that brings its dividend yield to approximately 4.66 percent. 

Income investors are particularly excited about Verizon because its dividend has the third-highest yield of all companies included in the Dow Jones Industrial Average.

Only IBM (4.71 percent) and Chevron (5.45 percent) are higher. When Verizon’s dividend yield is compared to the S&P 500 average of 1.33 percent – well, there is no comparison. 

Perhaps more importantly, it appears that Verizon’s dividend is secure regardless of concerns about debt. The company’s free cash flow was $11.7 billion in the first half of 2021, and nearly half was allocated to dividend payments.

That sort of investor income from a strong company involved in the deployment of critical infrastructure would be widely considered a smart buy at any reasonable price, but today’s low share prices are extremely attractive.

The company’s price-to-earnings ratio is currently 11.3, down from its 13-year median of 14.7. The discounted stock price limits downside potential for investors while positioning them to benefit from reliable income and an increase in the value of their shares. 

In other words, the bottom line is that Verizon is one dirt cheap stock to buy now. 

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.