In the past week, earnings from such names as Microsoft (MSFT) and Google (GOOG) have left investors and analysts scratching their heads in disbelief. Google seems to be blaming R.R. Donnelley (RRD) for a reporting miscue and Microsoft seems to be blaming its Windows Division, which experienced a 33% decline in revenue from the year ago period. In all honesty, Google needs to grow up and understand that no matter what time of time day that report was released it was going to adversely affect the intra-day (or after-hours) performance of stock. In my opinion, it may actually be a blessing in disguise, but that's a topic for another day. Should investors shift their short-term focus out of the tech sector and into the telecom and telecom services provider sectors based on recent earnings performance? I think they should and here are companies demonstrating continued earnings growth.
Verizon Communications, Inc. (VZ) - When most investors look at an in-line earnings report, they normally shrug it off, and go about their business. In the case of Verizon's most recent 'in-line' quarter, investors were able to see an earnings report that contained a plethora of positivity. First, the company reported a 14% increase in Q3 earnings year over year ($0.48/share in 2011 vs. $0.56/share in 2012), which is in itself is a very positive catalyst. Second, the company saw its wireless services significantly contribute to its overall revenue. Based on the company's Q3 earnings, Verizon saw an increase of 7.5% when it came to its wireless service revenues and a 7.9% increase in terms of its retail-based revenues. Lastly, and in my opinion one of the biggest contributing factors, was the fact that the company saw an increase in revenue per user account rise 6.0%, based on the year over year comparisons of $145.42/account vs. $136.57/account.
Over the last four quarters the company has demonstrated some very solid results beating analysts' estimates by an average of 0.005/share or roughly 1.10%. If Verizon can continue to demonstrate both positive growth in terms of its wireless operations and its 4G LTE network, I see no reason why a position should not be established at these levels. Income-based investors also have an incentive to establish a position considering the fact the company currently yields 4.60% ($2.06).
Magic Jack VocalTec, Inc. (CALL) - For the third quarter, Israeli-based Magic Jack did something most shareholders and potential investors would find encouraging. The company reversed its earnings course by posting profit for the quarter and enhancing its outlook for the year. On Friday the company announced it had "earned $15.1 million, or 78 cents per share, for the three months ended Sept. 30. Those numbers were up from a loss of $961,000, or 4 cents per share, in the same period last year. Revenue also jumped 64%, to $40.8 million from $24.9 million last year. Operating costs dropped 16 percent, to $12.9 million from $15.4 million". If it weren't for many of the special charges CALL took for the quarter,
the company would have had over $41 million in revenue and $0.75 in operating income per share.
Over the last four quarters the company has demonstrated some very solid results, with the only exception coming during the December 2011 quarter when the company demonstrated a loss of -$0.41/share. If Magic Jack can continue to demonstrate positive growth in terms of its Voice over Internet Protocol (VoIP) solutions and its patented Magic Jack product, I see no reason why a position should not be established at current levels. Income-based investors also have an incentive to establish a position considering the fact the company currently yields 4.60% ($2.06).
Potential investors looking to establish a position in either VZ or CALL, as an alternative to some of the weakening earnings performers within the tech sector (such as Microsoft or Google) should do so with a small to moderate position and add to that position as both companies' developments begin to enhance bottom line numbers. Verizon has very promising potential, especially when it comes to wireless operations, and if Magic Jack can continue to show promise in terms of earnings and revenue growth, both companies could be very good long-term investments for years to come.