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What Warren Buffett sees in Verizon that the stock market doesn’t

February 17, 2021, 4:11 PM UTC

When Apple introduced its first-ever 5G iPhones last fall, CEO Tim Cook gave a lot of stage time to Verizon CEO Hans Vestberg. Apple fans groaned at the seemingly nonstop advertisements for Verizon in the keynote. But Cook may have been betting that Verizon’s strategy to deploy the fastest version of 5G in the world would make the new iPhones look more appealing.

And at least one Apple fan was impressed by what he saw. Legendary investor Warren Buffett, who is one of Apple’s largest shareholders, made a multi-billion dollar bet on Verizon in the fourth quarter. According to a filing made public on Tuesday, Buffett’s Berkshire Hathaway bought almost 147 million shares of Verizon (worth $8 billion at current prices).

Buffett used to be known for buying stocks of companies in straightforward businesses like banking and soda pop while avoiding tech. “I don’t know what that world will look like in 10 years,” he offered by way of explanation in 1998. Good timing to miss the Internet bubble.

But starting about 10 years ago, he changed his mind. Tech had become more integral to business and seemingly more straightforward. Buffett’s first foray, though, buying more than 5% of IBM in 2011, didn’t turn out so well. Still, the Oracle of Omaha dug in and learned more about tech. His next move, buying Apple as a dominant consumer brand in 2017, was a winner, a huge winner (our headline, “Warren Buffett Could Be Wrong About Apple,” not withstanding). And thanks to some of the younger stock-picking talent he’s brought in, so was the follow up, buying Amazon in 2019.

Verizon, though not classified as a tech stock, is closely related. We mentioned them almost 40 times in Data Sheet last year. The carrier is deep in a race with rivals AT&T and T-Mobile to roll out 5G, the next generation of wireless technology that will eventually unleash a host of new applications and business opportunities. But AT&T has mucked up its business by buying a shrinking satellite TV service, not to mention the whole Time Warner thing. And while analysts say T-Mobile has a great future in 5G, its stock price has outpaced the market for several years running.

Verizon stands apart from those two. It hasn’t overspent on unrelated businesses like AT&T. It also hasn’t seen its stock run up much like T-Mobile. At Tuesday’s closing price of $54.15, the stock is just about where it was trading 21 years ago. That may be in large part because Verizon’s sales and net income haven’t been growing much either. Both figures were higher in 2015 than 2020, and that’s even with the benefit of the massive Trump tax cuts.

And there are a couple more problems worth mentioning. First, Verizon’s super-fast version of 5G that so impressed Tim Cook is only available in limited areas and Verizon’s slower but more widespread 5G network is so slow it’s worse than 4G sometimes. Also, no hot, new, 5G-required applications have appeared yet, and if 4G history is any indication, Verizon may not be the major beneficiary even when they do. Finally, Verizon needs more airwave spectrum to keep up with T-Mobile in 5G and likely just spent tens of billions of dollars at the latest spectrum auction to do so (the results will be made public soon).

Buffett and his team may be betting that the stock market has already considered all of the bad news and that 5G will eventually bring more revenue and profits. They can obviously afford to wait.

Longtime telecom analyst Craig Moffett upgraded Verizon to a “buy” rating in December, saying the stock was “simply too cheap to be ignored.” That sounds like just the kind of pitch that Warren Buffett likes to hear.

Aaron Pressman
@ampressman
aaron.pressman@fortune.com

NEWSWORTHY

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Screen dreams. The pandemic ignited a buying spree for new computers, but the surprise winner may be Google's Chrome operating system. For 2020, devices running ChromeOS gained 4.4 percentage points of market share and captured almost 11% of the market, according to data from IDC. Microsoft's Windows lost 5 points of market share but still had almost 81% of the market. And Apple's Mac computers gained 1 point and had an 8% share. Speaking of pandemic-era winners, Shopify said its sales almost doubled to $910 million in the fourth quarter. Its stock, up 177% over the past year and at an all-time high on Tuesday, was down 8% in early trading on Wednesday.

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Chatterbox charlatan. Count me bearish on the hype about freewheeling audio hosting service Clubhouse. Danielle has written a solid explainer if you're not familiar with the app that has attracted Elon Musk and other tech luminaries to chat in public. "Brad Pitt" appeared on Clubhouse on Tuesday to talk about climate change. Why the scare quotes? It wasn't actually Brad Pitt, but New York City photographer Jacob Tran posing as Pitt. Nice. There has been some chatter that Clubhouse will wipe out podcasting. Yikes, but no. In that space, radio giant iHeartMedia is buying podcasting outfit Triton Digital for $230 million. Meanwhile, Twitter is testing allowing users to send short recorded voice messages as DMs in a few countries.

FOOD FOR THOUGHT

If you live in Texas, we hope you are okay despite the low temperatures and widespread power outages. The problem isn't due to technology such as too many wind turbines or solar arrays. Washington Post energy reporter Will Englund explains the issue is with the system set up by local lawmakers.

What has sent Texas reeling is not an engineering problem, nor is it the frozen wind turbines blamed by prominent Republicans. It is a financial structure for power generation that offers no incentives to power plant operators to prepare for winter. In the name of deregulation and free markets, critics say, Texas has created an electric grid that puts an emphasis on cheap prices over reliable service.

It’s a “Wild West market design based only on short-run prices,” said Matt Breidert, a portfolio manager at a firm called TortoiseEcofin.

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BEFORE YOU GO

Tomorrow afternoon at around 2:15 p.m. ET, NASA will begin streaming the approach of its Perseverance Rover to land on Mars. The rover, and its super-cool drone helicopter called Ingenuity, should be safely on the Red Planet by 4 p.m. Smithsonian has a great piece explaining how the drone was designed and what it will explore if it lands safely. Fingers crossed!