5 Reasons to Buy to Sprint (S)

In the first three months of 2010, investors sprinted away from Sprint Nextel (S). The company’s shares were under heavy selling pressure, and many analysts had proclaimed Sprint dead money. Yet despite calls for Sprint’s demise, buyers felt differently.

Since March, the telecom company’s shares have gone on a stellar run higher. The stock easily breached the $5 mark in May, but since hitting its $5.29 apex, the shares have struggled. So, which way will this stock go next? Will there be more selling, or will investors sprint back into Sprint?

Here are five reasons why S shares are headed for a V-shaped recovery.

Sprint merger potentially potent. There’s definitely a sense of pent-up demand for Sprint shares, and the evidence can be seen in the +5.1% jump in the stock on in one trading session on July 12. The catalyst for this big move higher was a Financial Times story quoting Sprint CEO Dan Hesse as saying the company is considering the adoption of the 4G wireless broadband technology known as LTE (both Verizon (VZ) and AT&T (T) have plans to roll out their own LTE-based network). The adoption of LTE was read as a sign that the company was preparing for a merger with rival carrier T-Mobile, a unit of Deutsche Telekom. The Financial Times story pointed out that Deutsche Telekom had considered buying Sprint in 2008, but decided against the move due in largely because the two wireless businesses use different 3G technologies. Once the two companies are technically compatible, it could clear the way for a merger.

Sprint Has 4G advantage. Sprint already has an advantage in the 4G space with its WiMAX technology, as it was the first U.S. wireless carrier to roll out a 4G network. In partnership with Clearwire (CLWR

), a company that Sprint holds a majority stake in, the current 4G network is much more built out than its rivals. That’s good news for data-hungry smartphone users, and as the smartphone market continues growing at breakneck pace, the first-mover advantage could be with Sprint. According to Hesse, “We have the spectrum resources where we could add LTE if we choose to do that, on top of the WiMAX network… The beauty of having a lot of spectrum is we have a lot of flexibility.”

Sprint Smartphone EVO-lution. Apple‘s (AAPL) iPhone 4G has received a lot of attention since its June 24 release — some good, and some not-so good. But what’s gone relatively unnoticed is the tremendous popularity of Sprint’s HTC EVO smartphone. The device went on sale in early June, and since then Sprint stores have had a hard time keeping up with customer demand. The HTC EVO uses the highly popular Android OS, and the combination of an Android phone on the only fully functional 4G network is causing a stir in the smartphone space — a stir that’s likely going to be a big positive for Sprint’s bottom line going forward.

Sprint Nextel’s Pre-Paid Advantage. Every company needs its niche market, and for Sprint that niche is the pre-paid cellular customer. In fact, the prepaid cellular market is the fastest growing mobile phone segment, as many cell phone users have decided to eschew the trapped feeling of long-term contracts in favor of a pay-as-you-go model. Sprint owns two of the largest names in prepaid wireless service, Boost Mobile and Virgin Mobile. This gives Sprint a nice hold on this growing niche market.

Technicals are Bullish for S Stock. The July buying in Sprint shares now has taken the stock back above its short-term, 50-day moving average. The stock has traded above its long-term, 200-day moving since March, but the recent breaching of the short-term trend shows that the impetus going forward is clearly with the bulls. This positive technical development is largely a result of the aforementioned reasons why Sprint shares are on the move. When you add up all of the positives — you get a clear sprint toward Sprint.

As of this writing, Jim Woods did not own a position in any of the stocks named here.

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