(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of VZ.)
Verizon Communications Inc. (VZ) has been red-hot lately, with shares of the telecom giant rising by nearly 21 percent since November 15, easily beating the S&P 500 Index's 4.5 percent return.
The recent strength could be a sign that investors are starting to view Verizon more optimistically as the company continues to transform itself into a digital media player through its acquisitions of AOL and Yahoo! over the past couple of years.
Verizon will potentially have a new growth spurt in 2018, when it launches its 5G wireless service in the second half of the year to five markets, reaching an estimated 30 million households. The newfound growth could lift the stock to $64, a rise of 20 percent from its current price. Those are levels not seen since the late 1990's based on technical and options market analyses.
The daily chart above shows how Verizon has broken out of a downtrend that has been in place since June 2016. The breakout should propel Verizon shares above $54.50 and through the original target of $56, first mentioned in an Investopedia article on November 28. (See also: Verizon's Stock May Rise More Than 15% in 2018.)
The options market is pricing in a rise as well, using the long straddle options strategy using the $52.50 strike price set to expire on January 18, 2019. The strategy suggests Verizon could rise or fall by roughly 15 percent, putting the stock in a range of $44.50 to $60.50.
But the calls outnumber the puts by more than 2-to-1, with nearly 5,500 contracts of open interest for the calls, versus only 2,100 contracts open for the puts.
A Return to $64?
The $55 strike price calls, based on the price per call of $2.60, suggest a breakeven price of about $57.60. At that price, Verizon shares would be trading above its previous high and resistance level of $56, clearing the way for the stock to challenge levels not seen since September 1999, when it was trading at roughly $64.
For now, the options market and technical analysis both suggest Verizon's stock could see a significant gain in 2018. But first, Verizon will have to deliver on its ambitious digital and 5G wireless strategies.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.