Every investor’s goal is to find a goldilocks stock with relatively low risk and high returns, especially if it is an individual stock. I remember being unusually enamored by the Verizon stock due to its low market price, dividend payout, and low volatility. However, is the stock you have chosen to invest in too safe? Let’s dissect the financial ratios of the Verizon stock, the current state of the communications sector, and whether you can actually multiply your money anxiety-free with an investment in this stock.
Financial Ratios
Financial ratios of a company’s historical data can act like bubble wrap for your potential investments. Let’s start with Verizon’s P/E ratio at 7.69, which seems to be low compared to other stocks in the sector such as Meta with an earnings ratio at 24.69. For investors, this means that they could make around 3x the profit by investing in Meta compared to Verizon. Next, let’s discuss the general volatility of the stock with the beta. Verizon’s beta is at 0.34, which is significantly lower than the rest of the market, which might initially seem like a green flag. However, an extremely low beta is a Trojan horse circumstance for extremely low returns. Meta’s beta at 1.18 might be intimidating for investors, but it can lead to high returns.
Communications Sector
The communications sector is an integral part of the U.S. economy, and it consists of all publicly traded companies that provide wireless, cellular, fixed-line, and other communication services. This sector is weighted at 7.3% of the S&P 500. In 2022, the communications sector severely underperformed the S&P 500 with a loss at around 35%, but the first quarter of 2023 has been a significant rebound for this sector with Meta and Netflix stocks skyrocketing. Since the communications sector is heavily weighted with Alphabet and Meta, its performance is considerably determined by these cyclical stocks.
Takeaway
The lack of sufficient volatility in a stock could never really lead to high enough profits, unless utilizing a strategy such as scalping that involves the accumulation of small trading profits that snowball into sufficient gains; however, this could also be very time consuming. Nevertheless, Verizon’s dividend payout at around $0.65 per share still makes it an attractive investment solely depending on where an investor’s priorities lie.