I'm searching for good investments to make in 2013. In this article, we'll take a look at Verizon (VZ). We'll take a look at Verizon's valuation, financial performance and share price performance. Also, we'll evaluate Verizon from the perspective of a technical analyst.
First, we'll use descriptive statistics by taking a sample of the population of monthly returns of VZ. At this point we won't make any statistical inferences. Some of the sample statistics will include the arithmetic time-series mean monthly return, and the time-series median monthly return. Also, we'll take a look at a histogram. We'll also discuss the absolute frequencies, relative frequencies and cumulative relative frequencies of the return profile. Further, we'll determine the geometric mean return and the modal interval. The sample will consist of monthly returns between 2000 and 2012.
The arithmetic time-series mean monthly nominal return was 0.4 percent. The time-series median monthly nominal return was 0.7 percent.
One of the nominal monthly returns was between -25 percent and -20 percent. Six of the nominal monthly returns were between -15 percent and -10 percent. Forty-seven of the nominal monthly returns were between 0 percent and 5 percent. Thirty of the nominal monthly returns were between 5 percent and 10 percent. One of the nominal monthly returns was between 35 percent and 40 percent.
Almost 24 percent of the nominal monthly returns were between -5 percent and 0 percent. Further, about 30 percent of the nominal monthly returns were between 0 percent and 5 percent. Less than one percent of the nominal monthly returns were between -25 percent and -20 percent.
That said, about 43 percent of the nominal monthly returns were between -25 percent and 0 percent. That means the other 57 percent of nominal monthly returns were 0 percent or higher. The modal interval was 0 percent to 5 percent.
The time-series geometric mean nominal monthly return or time-series nominal monthly compound growth rate was 0.2 percent. The nominal geometric mean monthly return on a bond equivalent basis was 2.4 percent. The nominal geometric mean monthly return on an effective annual yield basis was 2.4 percent.
Sprint had a nominal times-series geometric mean monthly return of -1.4 percent while AT&T's geometric mean monthly return was 0.2 percent. AT&T and VZ are generating the same compound return.
AT&T's and Verizon's distributions were positively skewed and Sprint's was negatively skewed.
Here is where the story gets interesting. Between 2002 and 2011, AT&T's sales grew at a compound rate of almost 13 percent. Verizon's sales grew at a compound rate of almost 7 percent.
Beside that, during the same period, AT&T's arithmetic average operating margin was 16 percent and its average net profit margin was 11 percent. Verizon's arithmetic average operating margin was 14 percent and its net profit margin was 6 percent.
Thus, AT&T is growing much faster than Verizon, but the market isn't rewarding faster growth with faster share price appreciation. Also, AT&T is increasing its dividend at almost twice the rate of Verizon.
Verizon is trading at 1.07 times sales and 40.09 times trailing earnings.
AT&T is trading at 1.49 times sales and 43.27 times trailing earnings.
The market is rewarding AT&T with a higher sales multiple, however, that isn't yet translating into capital gains for investors.
What we are seeing is a potential head & shoulders top. A close below $39 would confirm the head & shoulders price pattern. From there the minimum implied measured objective would be about $33. The 14-day RSI is suggesting VZ is in a bear market. Shares are trading below the declining 50-day simple moving average: the intermediate-term trend towards lower prices.
When you look at the return distribution, it suggests Verizon is a riskier investment than AT&T. Then, considering the financial performance, AT&T is a better investment than Verizon. That said, the purpose of this paper is to review Verizon: I'm recommending Verizon as a good short-sale candidate for professional investors.
Disclaimer: This article is not meant to establish or continue an investment advisory relationship. Before investing, readers should consult their financial advisor. Christopher Grosvenor does not know your financial situation and ability to bear risk and thus his opinions may not be suitable for all investors.