Verizon Communications Inc Chart Still Sporting 'Head And Shoulders' Top Potential

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Verizon Communications Inc VZ shares have seen some buying interest throughout the last couple of weeks as the markets have seen increased volatility. Verizon has long been a "safe harbor" for traders and investors seeking some shelter during the inevitable market storms and this time around seems to be no different.

What The Bulls See

  • A "cheap" stock based on several metrics: its enterprise value is far greater than its market capitalization and its price-to-sales is 1.67.
  • Nice gross (27.53 percent) and net (12.50 percent) profit margins.
  • Strong positive levered free cash flow of $28.29 billion annually.
  • An attractive 4.2 percent dividend yield.
  • A stock still trading above its long-term uptrend line despite some short-term underperformance.

What The Bears See

  • An expensive stock based on several metrics: a price-to-book ratio of 13.6 (where three is "fairly valued" in most cases) and a price-to-earnings ratio of just under 14; its estimated revenue and earnings growth for 2015 come in at 2.7 percent and 9.3 percent, respectively.
  • A heavy debt burden as evidenced by its debt-to-equity ratio of 687.26 percent.
  • A potential bearish "head and shoulders" top formation coming to fruition if support at $48.40 breaks.

Technical Take

Technicians note that Verizon stock may, if things deteriorate from current levels, threaten to fulfill a "head and shoulders" top pattern and move down to the $44 to $46 area (from $50.01 on Tuesday's close). A close below $49.47 will likely open the door for a test of the “neckline” of the “head and shoulders” formation at $48.40.

On the other hand, if the bulls can rally the stock a bit more and close Verizon above $50.20, the bearish “head and shoulders” will likely not play out. If that more bullish scenario plays out, Verizon would have upside targets of $51.16, $51.90 and $52.37.

Verizon is one of the go-to stocks for value investors, dividend investors and shorter-term players seeking “safety” when times get tough. With a short-term period of increased market volatility going on right now, Verizon shares are seeing inflows from the shorter-term players. Unless the market is really rolling over for a major correction (instead of a mild correction), however, those players will be exiting the stock and re-entering the higher beta universe at some point soon.

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