Stock Spotlight: Verizon Communications (VZ)

A 9-rated stock in a 10-rated industry? What's not to like about Verizon Communications--our featured stock of the week?

Verizon Communications (VZ@VZ | Quote | Chart | News | PowerRating) sits atop the Domestic Telecom Services industry group, along with 8-rated stock Citizens Communications (CZN@CZN | Quote | Chart | News | PowerRating). And as I mentioned at the outset, Verizon belongs to an industry from which investors and long-term traders can expect good things going forward.

This is because with its PowerRating of 10, the Domestic Telecom Services industry is one of the few industries that, according to our research, are capable of more than doubling the returns of the average industry group. Specifically, we found that industries with PowerRatings of 10 produced average annualized returns of more than 35% from 1995 to 2006. The average industry, by contrast, achieved average annualized returns of approximately 14%.

Verizon is a major telecommunications company with business operations in both landline ("wireline") and wireless communications. But what has truly captured the imagination of investors has been Verizon's FIOS fiber optic technology which boosters say will overtake cable in the near future.

With its PowerRating of 9, Verizon belongs to that class of stocks which, according to our research, have been both more reliable and better performers compared to the average stock. We found that, based on thousands and thousands of simulated trades between 1995 and 2007, stocks with PowerRatings of 9 have been higher one year later more than 79% of the time. Compare this to the average stock, which has been higher one year later less than 68% of the time.

Moreoever, 9-rated stocks have tended to gain more than the average stock after a year. While the average stock has tended to gain between 12 and 13% after a year, we discovered that stocks with PowerRatings of 9 gained an average of 18.05% after a year's time.

Verizon had a PowerRating of 7 coming out of December and going into January, as the stock slipped below the 200-day moving average. As the stock moved sideways, Verizon's PowerRating edged higher to an 8, where the stock's PowerRating remained from mid-January to mid-February. As the stock bounced in late February, its PowerRating dipped a point lower once again, though as that bounce has started to roll over somewhat, taking Verizon back toward the lower $30s, the stock's PowerRating has recovered to its recent high of 9.

Verizon most recently reported a sales miss for the fourth quarter of 2007. The company blamed home phone users migrating away from Verizon's landline service in favor of other options in cable and wireless from rivals. Verizon did report an increase in earnings per share for the quarter, however, and insisted that the company's plan to dramatically increase spending to the tune of $23 billion to increase Internet service speeds and add television service remains on track.

David Penn is Senior Editor at PowerRatings.net.