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Verizon Slogs Away In Volatile Sector
September 11, 2005

http://www.courant.com/business/hc-ymleckey0911.artsep11,0,3174603.story?coll=hc-headlines-business

Q. I own stock in Verizon Communications Inc. that I have been watching go down almost every day for the past year. I wish I had sold it and put the money into bank certificates of deposit. What do you think about Verizon's future? I feel like I've waited too long now.

A. Telecommunications is exciting, but volatile.

Verizon Communications (VZ) is long on vision, strategy and customers, but must navigate fierce rivalry, rapidly changing technologies and significant debt.

Shares are down 16 percent this year, following a gain of more than 15 percent last year.

This telecom giant recently warned that it might reduce the $8.5 billion it had agreed to pay for MCI Inc. because of that company's large liabilities. MCI shareholders vote Oct. 6 on that offer, chosen over a higher bid from Qwest Communications International Inc.

In its second quarter, Verizon's net income rose 17 percent, including proceeds from the sale of its Hawaiian wireline and directory operations, as well as strong results from Verizon Wireless. But that profit was slightly below analysts' forecasts. Wireless is booming, but fixed lines are not.

Verizon Wireless, a 55 percent-owned joint venture with Britain's Vodafone Group PLC, added 1.9 million subscribers in the second quarter. That compares with a 1.07 million-subscriber gain by Cingular Wireless and 550,000 by Nextel Communications Inc. Of concern, however, are the costly price wars in wireless broadband services.

Meanwhile, in the wake of Hurricane Katrina, crews from Verizon Wireless have worked around the clock on repairs to damaged New Orleans and Gulf Coast wireless service.

The local fixed-line phone service to nearly one-third of the U.S. population is provided by Verizon, primarily in the Northeast. Although Verizon is upgrading this technology, many customers continue to replace traditional phone lines with wireless and data services or switch carriers.

Amid this tumult, the consensus analyst opinion on shares of Verizon is a "hold," according to Thomson Financial.

A significant concern is the fact that Verizon has one of the industry's largest debt loads, at $41.8 billion. It has increased its 2005 capital spending budget to $15.3 billion from $13.3 billion in 2004 to expand its wireless network.

Earnings are expected to rise 0.8 percent this year, vs. a 17 percent gain predicted for the domestic telecommunications services industry.

Q. My shares of Fidelity Growth Co. have done fairly well, and I'm considering adding to my holdings. What is your opinion of this fund?

A. Consider it big and beautiful. This aggressive fund sticks with large growth stocks and performs best in market environments in which traditional growth segments, such as health care and technology, dominate.

That has not been the case for a while. But because growth stocks are the Fidelity fund family's forte, and Steven Wymer is one of its best managers, this is a solid long-term investment rather than a short-term bet.

The $25 billion Fidelity Growth Company (FDGRX) gained about 5 percent so far this year. Its three-year annualized return of 17 percent puts it in the top 4 percent of its peers.

"I think large-cap stocks are coming back, but it might not happen until long-term interest rates go up," said Jack Bowers, editor of the independent Fidelity Monitor newsletter (www.fidelitymonitor.com) in Rocklin, Calif. "Smaller companies remain profitable buyout targets because rates are so low," he said.

Bowers noted that during the past decade Fidelity Growth Co. outperformed more than 80 percent of its peers. Wymer, in charge since 1997, adds turnaround plays and specialized areas, such as biotech, to more traditional selections. Although a large Fidelity analyst team provides skilled professional support, growth investments always carry some risk.

Health care and hardware each account for more than one-fourth of the portfolio. Other significant concentrations are business services and industrial materials. Top holdings were recently Google, Network Appliance, Apple Computer, Microsoft, Monsanto, Pfizer and Qualcomm.

This "no-load" (no sales charge) fund requires a $2,500 minimum initial investment. Its annual expense ratio is 0.82 percent.

Fidelity Management & Research, adviser to the Fidelity funds, was not implicated in the market-timing or late-trading scandals. But regulators have investigated gifts that its stock traders allegedly received from brokers. After conducting its own investigation, the firm disciplined 14 traders, and two traders left.



Andrew Leckey is a Tribune Media Services columnist. E-mail him at [e-mail].