by Lawrence Meyers | October 27, 2011 8:31 am
In my mind, there are very few reasons to bother with the big three telecom stocks these days. Sprint (NYSE:S[1]), AT&T (NYSE:T[2]) and Verizon (NYSE:VZ[3]) were all the rage at one point. Today, however, they are commodities — no different than the racks upon racks of DVD players and TVs in your local electronics store.
Sprint in particular has been stumbling around like an actor doing an over-the-top death scene for several years. On Wednesday, the company reported some good news — Sprint’s quarterly loss was only $301 million, versus $911 million last year. Then again, that’s a bit like telling the aforementioned actor he was shot only five times instead of six.
Sprint did manage to lift revenues 2.2%, and it did add 1.3 million subscribers — numbers not seen in about five years. Then again, these subscribers are the dregs of the revenue chain, purchasing low-cost plans or those from rivals that use Sprint’s network. On the other hand, the company expects iPhone net income to add more than $7 billion in the next four years. So it’s good news and bad news and good news and bad news for Sprint.
Does it make any sense at all to buy S stock? I see only two reasons: In the short term, you buy the stock if you enjoy swing trading. There’s something to be said for making well-timed buys and sells on a range-bound stock that is at the bottom of its range. The other reason is if you think Sprint’s fortunes are going to improve. If so, there’s not much distance between the present stock price of $2.51 and zero, limiting your downside, while the upside could mean a multi-bagger.
Looking at the two big competitors, AT&T (NYSE:T[2]) makes no sense as a purchase, either, unless you are buying in strictly for its dividend. Now, a 6% yield is nothing to sneeze at, particularly if you enjoy that juicy check every quarter or hold the stock in a retirement portfolio. But from my perspective, T stock’s growth days are over; AT&T is going to muddle around for a long time. However, I do believe T stock’s dividend is secure for the long term, given AT&T’s penchant for delivering free cash flow in the mid-teens — of billions of dollars, that is.
Verizon (NYSE:VZ[3]) really isn’t much different. There is some positive news here, in that it is expected to see 10% annualized earnings growth over the next five years, compared to 4.5% at Sprint and 3.8% at AT&T. But VZ stock trades at a 16.5 P/E (vs. 12 for AT&T) which is way too high a premium, even though Verizon has solid free cash flow. Yeah, it’s a “buy” for its 5.4% yield if that’s what excites you as an investor, but I see greater likelihood of capital losses as the market corrects to its fair value around $25 (by my estimate).
Personally, I’d hang up on domestic telecom. Foreign telecom has more intriguing possibilities, with nice dividends and near-government-controlled monopolies in some cases. Check those out instead.
As of this writing, Lawrence Meyers did not own a position in any of the aforementioned stocks.
Source URL: https://investorplace.com/2011/10/sprint-s-stock-stinks-t-vz/
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