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

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.