Buffett's Buying This Telecom -- And It Looks Set To Pop

Tuesday, May 20, 2014 - 2:45pm

by Serge Berger

The major telecommunication stocks always seem to be in focus in one way or another. When not involved in mergers or acquisitions, or being roiled by lawsuits or federal regulations, they are often the focus of dividend-seeking investors.

Last week, we found out that Warren Buffett's Berkshire Hathaway (NYSE: BRK-B), Paulson & Co. and Third Point added positions in Verizon Communications (NYSE: VZ) when the hedge funds revealed their latest quarterly regulatory filings.

This information is obviously on a time lag, but the media and public pay attention nonetheless. And, of course, anytime Buffett makes a big purchase, people take notice. In the case of VZ, it's an 11 million-share stake as of March 31, which is valued at about $530 million. 

As a result of the hedge fund news, VZ rallied 2.3% Friday in a technically significant move, and it appears the upside momentum will continue.

Before we get to VZ's chart, let's take a look at iShares US Telecommunications (NYSE: IYZ).

From the depths of early 2009 to the recent highs, IYZ has steadily risen. From a technical perspective, the trend remains intact, so the odds of a continuation are good.

On the weekly chart of VZ, we see picture a similar picture.

In the broad sense, the stock still trades in its 2009 uptrend, but even more constructive is the price action since its April 2013 peak.

VZ broke past a long-term lateral resistance area in early 2013, and has since been consolidating. Over the past 12 months, the stock built a good-looking base above this former resistance level, thus making it a good support area.

Moving on to the daily chart, Friday's rally broke past the diagonal resistance line drawn from the 2013 top. 

More near term, it also broke past lateral resistance near the $48.59 mark and out of a tight consolidation pattern from the past week and a half. 

The technical picture and the news flow currently match up, giving us a bullish bias in VZ.

Action to Take -->
-- Buy VZ at $48.90 or higher
-- Set stop-loss at $48
-- Set initial price target at $51.50 for a potential 5% gain in four to eight weeks

This article was originally published at ProfitableTrading.com: 
Buffett's Hot on Verizon, but What Do the Charts Say?

P.S. Warren Buffett doesn't just sit around and wait for a great deal on a high-quality stock he wants to own. In fact, one of his favorite investment strategies allows him to buy a stock at the exact low price he wants, all while generating huge streams of income. My colleague, Michael Vodicka has been using this same strategy on trusted stocks like Verizon -- which is yielding 4.3% -- to collect 5% income yields or higher in just over a month's time with the chance to buy these companies at a huge discount. To learn more about this Income Multiplier strategy, click here.

Serge Berger does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.