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SIVY ON STOCKS from money.com
June 8, 2001 ********************[ A D V E R T I S E M E N T ]**************** $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 What would you do with $10,000? Thanks to MONEY, there's one way to find out! Enter today for a chance to win $10,000! Plus, a FREE trial issue of MONEY Magazine is waiting for you! http://www.money.com/sweepstakes **************************************************************** The favorite phone Despite all the problems in the telecom industry, Verizon looks like it's in terrific shape. By Michael Sivy If you were looking for an industry to be the poster child of the tech wreck, you'd have to pick telecom. All three of the major long-distance telephone firms -- AT&T, WorldCom and Sprint -- are having to face up to business strategies that have failed. And suppliers of the industry's infrastructure -- from Corning to Lucent and Nortel Networks -- have seen short-term demand for their products collapse. But amid all the wreckage, a few of the local phone companies are in surprisingly good shape. And none has more to cheer about than Verizon [VZ]. As industry deregulation opened the door to more competition, everyone expected that long-distance and high-tech would thrive while local service withered. But just the opposite has happened. Offering long-distance service is easy: All a company needs is one junction point in each market it wants to serve. But to compete in local, it needs connections to each subscriber's house. AT&T tried to get around that by using wireless technology and cable TV lines to deliver local service. But getting around established local service has been much harder to pull off than anyone expected. Local phone companies may indeed face competition on the home front in three to five years. But in the meantime, they're enjoying the best of both worlds -- a near-monopoly on their core business, combined with excellent expansion opportunities in other areas. And no company is playing both sides better than Verizon. Verizon's core market is arguably the most valuable in North America -- the Northeastern United States from Maine to Virginia. Moreover, the company, which was formed by a merger between Bell Atlantic and GTE in June 2000, has land lines to more than 30 states. Currently, Verizon is permitted to offer long-distance service in New York State and Massachusetts and will expand to other states as regulators permit. Even more impressive, the company has very strong positions in two of the fastest-growing telecom businesses -- wireless phones and digital subscriber lines (DSL) that are used for Internet access. Verizon is No. 1 in wireless, providing service almost everywhere in the U.S. and enjoying more than a quarter of the total market share. The company's DSL business is expanding faster than scheduled, passing 500,000 subscribers at the end of last year and on track to top its 1.2 million target at the end of this year. Of course, the company is feeling a bit of a pinch because of the current economic slowdown. But the merger between Bell Atlantic and GTE provided the usual post-merger cost-cutting opportunities that give Verizon some room to compensate for minor business shortfalls. Cost savings could reach $800 million in 2001 and approach $2 billion in 2002. For some reason, investors don't seem to be registering all these strengths. The share price is exactly where it was when I last recommended the stock in January, even though the company's outlook continues to improve. Over the next five years, Verizon could offer as much as 12 percent compound annual earnings growth along with a 2.8 percent dividend yield. That's clearly the makings of above-average total return -- and yet the shares now trade at 17.5 times earnings. Local phone service may not sound glamorous, but those are tough numbers to beat. ### Post your comments on Michael's column at: http://www.money.com/depts/investing/sivy/index.html To subscribe or unsubscribe to Sivy on Stocks, go to: http://www.money.com/email/ ----------------------------------------------------------- CONTACT THE BIGGEST COMPANIES IN THE WORLD! Over 5,000 contact names in the OFFICIAL FORTUNE Databases. DOWNLOAD THEM NOW! http://www.fortune.com/sitelets/datastore/index.html?mn01 ----------------------------------------------------------- * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * Special Internet Offer!!! 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