<p>Before the coronavirus from China dominated international headlines, Verizon Communications (NYSE: VZ) represented a relatively simple long-term bull fall. When the telecommunications industry launched the next generation of 5G technology, the VZ share was positive. Not only does 5G offer much faster wireless speeds for the consumer market, it has major implications for tomorrow’s economy.
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MoneyWire’s Matt McCall has a much more bullish term: Roaring 2020s. Basically, 5G is the springboard for several other digitized platforms that will change the way we live and work. Thanks to the fast fire transmission speeds made possible by 5G, we can finally bring up concepts that were exclusively the science fiction field. We are talking about innovations such as fully automatic cars and smart networks and infrastructures.
The basis for this catalyst is companies such as Verizon and rival AT&T (NYSE: T). Although telecom giants have made smaller than ideal acquisitions in the past, their scale and reach are second to none. Therefore, many investors felt comfortable buying VZ shares in the long run.
As a shareholder in AT&T, this is the position I have for the telco stalwarts. Recently, the Chinese government stressed the importance of new investment in 5G and other next-generation platforms, whether – or perhaps more precisely, because of – coronavirus.
Despite our heated ties with China – it believes in a phase of the trade agreement – the world’s second largest economy is still controversial against our national security interests. Therefore, if China intends to increase its infrastructure, it only makes sense that we will do the same.
After all, President Donald Trump is about “America First.” Since he can not afford to let the Chinese regret him in 5G, this geopolitical reality bodes well for VZ shares.
Doubtful latency hangs over VZ bearings
Although the coronavirus outbreak is divisive, most analysts would probably agree that the pandemic will fade at some point. Therefore, with the long-term story for Verizon a sure, the current weakness of the VZ stock is a discount.
But then the question becomes, is this moment the discount or is another, more comprehensive one over the horizon? This is where the situation becomes difficult.
During a Morgan Stanley (NYSE: MS) investor event, Verizon’s vice president and chief financial officer Matt Ellis stated that the coronavirus impact on its operations at present is “not significant.” Later on the line – especially if the authorities fail to limit the outbreak – Ellis acknowledged the potential for disruption.
Of course, a disruption in the supply chain is one of the biggest problems for VZ shares in the coming months. Although the domestic 5G rollout is not directly exposed to China’s devastating epidemic, nothing is happening in the technology world in a vacuum. With so many telecom equipment components built in China, the rollout is facing a challenge.
In addition, companies like Apple (NASDAQ: AAPL) know the pinch of coronavirus. At a time when several manufacturers expected to release their 5G-equipped smartphones and devices, the pandemic stopped these plans.
Again, this does not directly affect the VZ share, as the underlying company’s earnings usually come from monthly earnings. However, the advent of 5G-equipped smartphones would motivate Verizon’s investments in the next generation platform. As consumer sentiment is likely to suffer badly in the coming weeks, investors may wonder about Verizon’s immediate profitability.
Let’s face it: telecoms are not exactly sexy investments. On the other hand, 5G. Thus, we have a reverse Justin Timberlake situation here. Coronavirus takes sexy back.
Warning is the name of the game
While I like the telecom space, we have to respect the band. Like other blue chips, VZ shares are a clockwork investment. In my opinion, the probability of a downward movement is greater than the upward side.
Part of my argument is about exponential acceleration of coronavirus. We have already seen in other countries that only one transmission can quickly deteriorate to a raging fire. For example, Italy did not affect pandemic terror. A little over a week later, it is one of the most infected countries with over 4,600 cases and 197 deaths.
At home, President Trump once cautiously boasted at a news conference that the United States had no virus-related deaths. He also encouraged the American public to take into account that our country had only a handful of cases. At the time of writing, two people died of the virus in Florida, leading to the United States killing a total of 17 people.
With these facts in mind, I think the smart game is to wait. If you like long-term Verizon stock – and for what it’s worth, I do – you’ll probably get a better deal later.
Josh Enomoto, a former Sony Electronics Business Analyst, has helped broker large contracts with Fortune Global 500 companies. In recent years, he has delivered unique, critical insights for the investment markets, as well as for various other industries, including law, construction management and healthcare. At the time of writing, he owned shares in AT&T shares.