Why I Sold Verizon and Replaced It With IBM
I've been using Verizon Communications (NYSE: VZ) stock as a fixed-income replacement for some years. It's a stable business and shares currently pay an annual yield of about 4.5%. However, lackluster results in the 5G era, a floundering media business the company should never have acquired (remnants of AOL and Yahoo!), and a fast-growing T-Mobile US encroaching on Verizon's turf have made me rethink my position. As a replacement, I've settled on International Business Machines (NYSE: IBM). Here's why.
Like anyone else, I love a great deal, but sometimes, buying a "cheap" stock comes with hidden costs later on. IBM has long appeared to be an inexpensive stock but for good reason: Its legacy business lines have struggled for years. The acquisition of Red Hat was a game changer back in 2019, but the company was still dogged by declining businesses elsewhere. Over the last three years, IBM's total return (stock price plus dividends) has been negative 12%. Verizon, by contrast, has delivered a modest 31% total return over that same period.
But I think the tides are turning. Verizon's business carries a lot of debt (it costs a lot of money to build and maintain a mobile network, and those media assets added to the burden), and T-Mobile has been making real headway against its larger rival using next-gen 5G mobile service. Mobility is now a basic staple, not a growth industry. Meanwhile, IBM has been making some dramatic moves to narrow its focus on cloud computing, and new CEO Arvind Krishna has changed my mind about the company. It will be completing a spinoff of its managed infrastructure business by the end of this year -- not a total separation from its legacy operations but a sizable portion of the areas that have been a drag on IBM.
Source Fool.com
