Should This Stock be in Your Portfolio After Its Latest Report?

With Verizon Communications (NYSE:VZ) releasing third quarter financial results and shares currently trading near 52-week highs, is the blue-chip member a BUY, a WAIT and SEE, or a STAY AWAY?

Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Verizon Wireless, which is a joint venture between the parent company and Vodafone (NASDAQ:VOD), is the nation’s largest 4G LTE network. As more mobile devices are released to take advantage of the faster network, it serves as a reason for customers to gravitate towards Verizon and its services. For example, Apple’s (NASDAQ:AAPL) new and highly anticipated iPhone 5 is the first iPhone to offer 4G LTE connectivity. Samsung smartphones, which run on Google’s (NASDAQ:GOOG) developed Android operating system, also feature 4G LTE options.

In addition to new devices that run on 4G LTE, Verizon is expanding its network. On Thursday, the company launched its 4G LTE service in its 400th market – Marquette, Michigan – as well as additional markets. With the expanded reach of new areas, almost 4 out of 5 people across the United States now have access to the Verizon Wireless 4G LTE network.

“Today, we celebrate with our customers a milestone in the growth of our 4G LTE network, reaching customers beyond major cities to include small towns and rural areas with the very best offering of smartphones, tablets and other high-speed devices in the U.S.,” said Marni Walden, executive vice president and chief operating officer of Verizon Wireless, in a press release. “Our broad national network coverage is a demonstration of our commitment to providing the best possible mobile broadband experience to our customers.”

E = Earnings Are Increasing Quarter over Quarter

On Thursday, Verizon reported financial results for the third quarter. Net income for the company jumped 14.3 percent to $4.29 billion (56 cents per share), compared to $3.54 billion (49 cents per share) a year earlier. Non-GAAP earnings came in at 64 cents per share. Verizon tends to report earnings mostly inline with estimates, but the general trend is slightly higher. Non-GAAP earnings in the third quarter of 2011 and 2010 came in at 56 cents per share. Earnings have been helped by solid revenue numbers. In the most recent quarter, revenue rose 3.9 percent to $29.01 billion. Revenue has climbed higher for the past two quarters.

Verizon also announced that it sold 3.1 million iPhones last quarter, with 651,000 units being the new iPhone 5. It most likely would have sold more iPhone 5 units, but Apple has been dealing with supply issues. On the conference call, Fran Shammo, Verizon’s CFO, said that he expects Verizon to sell a higher volume of iPhone 5 sales in the current quarter.

However, because carriers subsidize the highly popular smartphone, it will likely impact margins to some extent. Over the past three months, Verizon has activated 6.5 million smartphones, more than any quarter in its history, with the exception of the fourth quarter 2011, when the iPhone 4S hit shelves.

T = Trends Support the Industry in which the Company Operates

This is one of the strongest components for Verizon within our CHEAT SHEET investing framework. The world is becoming more digital and connected than ever before. According to research firm Strategy Analytics, the number of worldwide smartphone users in the third quarter crossed 1 billion.

Analyst Scott Bicheno explains, “By the third quarter of 2011, we estimate there were 708 million smartphones in use worldwide. After a further year of soaring demand, the number of smartphones in use worldwide reached 1,038 billion units.”

During a Facebook (NASDAQ:FB) earnings conference call earlier this year, Mark Zuckerberg predicts, “Over the next 5 years, we expect 4 billion to 5 billion people to have smartphones. That’s more than twice as many people that have computers today.” Say what you will about Facebook and its troubles after debuting on the Nasdaq, but there is no denying that the world is moving to the mobile industry in droves.

InvestorsConclusion

Although Verizon is not the most exciting company in regards to earnings growth, it is a solid blue-chip that could add stability to one’s portfolio. With a price-to-earnings ratio of 45, it is not exactly a screaming buy, but it is cheaper than AT&T (NYSE:T) and the company’s 48 multiple. In addition to stability, it offers a dividend of 4.5 percent and exposure to the growing mobile market.

While smartphones are considered the bread and butter of Verizon, the emerging tablet market should not be overlooked either. As more companies such as Apple, Google, Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT) release tablet devices, the more connectivity consumers will demand. Taking into account these components of our CHEAT SHEET framework, we find that Verizon is a BUY for patient investors looking for a solid dividend name with capital appreciation upside.

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