Verizon Communications Inc.’s (VZ) stock has underperformed the S&P 500 by a wide margin in 2019, rising by roughly 9% compared to the S&P 500’s gain of around 29%. Despite the inadequate performance, hedge funds have been actively adding shares of Verizon to their portfolios, and that has resulted in the stock landing on the WhaleWisdom Heatmap.
The heatmap tracks the top 150 hedge funds as measured by the WhaleScore calculation. The stock moved up during the third quarter to 38 from 119 on the heatmap. It would seem that investors are turning their attention to the opportunities Verizon will have on the launch of the fifth generation of wireless technology, 5G.
Hedge Funds Buying Shares
At the end of the third quarter, 21 of the hedge funds tracked for the heatmap owned Verizon. Ten hedge funds added to their positions and eight funds reduced their holdings. It wasn’t only these select funds adding to Verizon in the quarter, because overall the aggregate shares held in Verizon increased by 19.6% to 86.1 million shares among all hedge funds. There were 14 funds that created new positions and 18 that liquidated their holdings. Meanwhile, 57 funds added to their position, while 60 reduced them.
Valuation Seems Reasonable
What may be most surprising is that analysts are not looking for significant growth out of Verizon in 2020. Revenue is expected to rise by 1.5% to $133.6 billion, while earnings are forecast to rise by around 2.5% to $4.94 per share. That growth rate isn’t projected to accelerate either in 2021, with revenue climbing by 1.4% to $135.4 billion, as earnings rise by 3.5% to $5.11 per share.
The stock does trade with a reasonable P/E ratio at 12.5 times one-year forward earnings estimates. When looking at the valuation of the stock on a historical basis, the shares seem reasonably inexpensive. The stock has traded with a P/E ratio in the range of 9.9 to 14 going back to the beginning of 2016. It would suggest that the equity can continue to see multiple expansion in 2020.
It is yet to be seen just how powerful the 5G wireless cycle will be, and just how much revenue it can generate for the wireless providers. But there is plenty of hope among investors that this will be a revolutionary enough launch to get subscribers to upgrade their wireless plans, much like the evolution from 3G to 4G helped to double Verizon’s stock from 2010 through 2013.