This year has thus far not been kind to telecom stocks. While the market benchmark S&P 500 index is now up 1% in 2014, the S&P telecommunications services sector index is down about 5%.
According to Steve Cortes, founder of Veracruz TJM, investors should take another look at telecom, particularly the nation's second-largest telecom company, Verizon. He believes investors should pay attention how Verizon trades with utilities to get a sense of where the stock should be headed next.
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"I love telecom here and it is an unloved sector," says Cortes. "But, I think there are good fundamental and technical reasons to get involved."
Cortes believes the recent drop in interest rates should favor Verizon's stock. The benchmark 10-year US Treasury note is now below 2.7%; it started 2014 at 3%. Falling interest rates generally favor utilities because they consistently pay dividends. Lower interest rates make dividend streams more valuable. What does that have to do with Verizon?
"Most of the time, utilities and telecom trade largely in tandem," says Cortes, who notes that utilities are outpacing the market; the S&P 500's utility sector is up nearly 6% this year, making it the secon-best performing sector. "Utilities breaking out higher as you would expect with low interest rates but telecom lagging behind because of some temporary issues."
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Cortes cites Vodafone's sale of its shares of Verizon Wireless to Verizon as one such "temporary" issues.
"I think there is real value here," says Cortes. "So, take out your Verizon smartphone, connect to your online broker, and buy VZ's stock."
CNBC contributor Gina Sanchez, founder of Chantico Global, agrees with Cortes' take on Verizon.
"The fundamentals for Verizon are actually quite good and the price movement just doesn't reflect that," says Sanchez, who sees overseas markets as a big driver of Verizon's future growth. "They're a huge dividend payer. And, as interest rates continue to stay low, that dividend makes a difference."
To see the full discussion on Verizon with Cortes on the technicals and Sanchez on the fundamentals, watch the video above.
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