Merrill Lynch came out with its 10 Best Stocks for 2007. Verizon and Sun Microsystems were on the list and neither deserve to be.
Verizon (VZ) is making a huge gamble on fiber-to-the-home. Its long-line business is dropping off in the face of competition from VoIP, expecially from the cable companies. Its wireless business is doing well, but that cannot carry the company.
Although the fiber initiative plans to pass 15 million homes by 2010, the service only has about 100,000 subscribers now. So, no matter what the projections, there is still plenty of risk in making them and the cost of the project is over $18 billion.
Verizon’s stock is also near its 52-week high, trading at nearly $37, and is well above its 200-day moving average. Verizon simply has too much risk built into it right now, especially given its lofty stock price.
Sun (SUNW) is also a big gamble that investors will probably lose. Sun’s stock has already gone from $3.50 in mid-2005 to it current price of $5.50.
Sun’s market share in the global server market is still growing. But, the company still trails large competitors like HP (HPQ) and IBM (IBM). Their marketing resouces are likely to make any more gains by Sun difficult to come by.
Sun ain’t going no where.
Douglas A. McIntyre can be reached at email@example.com. He does not own securities in companies that he writes about.