Markets

There's one Dow stock having a great day — Verizon

Key Points
  • Shares gained 2.2 percent, boosted by a Deutsche Bank upgrade and investors betting that Verizon's domestic revenues will be shielded from fears of a trade war hitting the broader market.
  • Verizon was the only stock in the Dow trading significantly into the green.
  • Deutsche Bank says shares are trading at a discount and the bank changed its rating to "buy," while upping its price target to $56.
Pedestrians cross Herald Square in front of a Verizon Wireless store in New York.
Richard Levine | Corbis | Getty Images

Verizon was the only member of the Dow Jones Industrial Average trading significantly into the green on Tuesday.

The gains came after Deutsche Bank upgraded the wireless provider, saying the shares were relatively cheap.

The stock closed 2.2 percent higher Tuesday, also boosted by investors betting that its domestic revenues will be shielded from fears of a trade war hitting the broader market. Johnson & Johnson, Pfizer, Merck, Procter & Gamble and Travelers traded slightly higher for a similar reason, but none had the gains of Verizon.

Deutsche Bank upped its rating for Verizon to buy, and increased its price target to $56, roughly $8 above where the stock was trading Tuesday.

Verizon is trading at a discount compared with its telecom peers, Deutsche Bank analyst Matthew Niknam wrote in a note to clients Tuesday. His 12-month price target implies 23 percent total return from current levels.

Niknam highlighted improving financial health in the overall U.S. wireless market and said Verizon, the nation's largest carrier, is set to benefit from investors' confidence.

"Wireless fundamentals are meaningfully improving, following a heightened wave of aggressive competitive activity in recent years," Niknam said.

Consolidation in the market, most recently with T-Mobile and Sprint's plans to merge, "could be viewed favorably by investors when considering the longer-term health of the U.S. Wireless market," Niknam said.

Still, the bank said rising interest rates have historically been a headwind for telecoms like Verizon. Deutsche Bank macroeconomists expect the 10-year Treasury yield to hit 3.5 percent by the end of 2018. Yields were around 2.92 Tuesday.

The Dow Jones industrial average fell more than 300 points at the open Tuesday, erasing all of its gains for the year. The 30-stock index was dragged down by Boeing and Caterpillar, which are considered to be bellwethers for trade tensions.

President Donald Trump asked the United States Trade Representative to identify $200 billion worth of Chinese goods for additional tariffs and Monday night said if China "refuses to change its practices" and continues with its own newly declared tariffs, then the additional levies would be imposed on Beijing.

In response, the Chinese Commerce Ministry said the latest threat of more tariffs violates previous negotiations and Washington "has initiated a trade war that violates market laws and is not in accordance with current global development trends."

Shares of Verizon have fallen about 8.5 percent this year, and were trading above $48 Tuesday.