Tuesday, April 7, 2009
(Cont'd from above)...

Jim (cont'd):   

Get this… Sprint Nextel Corp. (S) has actually been the best performer in the S&P 500 since the beginning of the year… it is up 137% year to date… that is a really positive sign… that is why we are going to wait for a pull back… it has been identified as a strong stock… it is still though only $4.35... that is no following… how is that possible… because Sprint was left for dead… no one thought it could find a way to compete… but it did… no one thought that it could pay its bills… but it did… and now nobody seems to care that it is a much better company than it’s stock price would suggest … but it is… even after its run Sprint is priced like it is going to disappear under the weight of the dead.

Now, the companies balance sheet is far from being pulchritudinous… but I do not think that it is going bankrupt… you want to find a stock that is yet to attract real levers at this point in the rally… but also has a thesis that allows you to get behind it on weakness… Sprint certainly isn’t loved by the streets… get this, 25 analysts covering it, 5 buys… 3 sells… 17 holds… lot of people who are looking to upgrade on the first tick down… that is a lot of analysts on the fence… that could send it higher once they finally see what we do… that the story is improving… these are the ingredients that make the kind of stock that we are looking for right now.

But we also need the most important one… a thesis… an actual reason to like the thing other than the chart, which is a thing of beauty… and we can definitely make the case for Sprint… Sprint is staying profitable, keeping its head above water, in fact, lately it has been doing a pretty good job… although looking at the trajectory of the stock over the last few years, not the last few months… would have you think that it is losing money hand over fist…. Sprint’s new phones are doing well… and it has made some big improvements to its customer service department… which should help mitigate its churn rate… the percentage of subscribers who decided to leave Sprint over a given period… churn can be a big problem for wireless companies… and historically Sprint has struggled with churn… it has a much higher churn rate than AT&T (T) or Verizon (VZ)… but if it can lower that churn… that alone should get some analysts from being don’t buy… to here… bull.

What else has Sprint been doing right… the company is boosting… got this boost multiple pre-paid brand… it is introduced as an unlimited plan.. that is unlimited pre-paid calls, text messages, internet access, walkie-talkie service $50 a month … which is resulting in many new subscriber additions… maybe that is what everyone was using on “24”… especially the President’s daughter, crafty lass… pre-paid plans are kind of the trade down of the cell phone world… and as consumers have been feeling poorer… the boost mobile business has been doing very well… because people want to switch to lower cost pre-paid plans.

In terms of new phones, Sprint Nextel Corp. (S) added a Blackberry to its lineup… it has been selling well… more Blackberries later… it is also releasing, exclusively, the new smart phone from Palm… the Pre… which should also help bring in new subscribers… but even though Sprint stock has rallied hard… the share price seems to be saying that the companies survival is still in jeopardy… investors are worried about the Sprint’s debt… but the company has enough cash to pay down any near term securities… that is when you have to repay the principal to your bond holders… Sprint plans to keep its cash above $4b… the company has $600m in debt maturing in 2009... $2.3b in 2010... I still think that it will have no trouble paying that money off… lets not forget… Sprint generates a lot of cash… $3b in expected free cash flow in 2009... it can use some of that money to pay down even more debt later in this year… that is why I like this story.

Here is the lesson… I think it is ready… you have to ready yourself… not right now it is up… ready yourself to pick up some Sprint as the sell off continues… this show is not just about telling you what to buy and what to sell… it is about teaching you about how to manage your own money… Sprint is an example of the kind of stock that has no believers whatsoever… that is ignored.. but that shouldn’t be for long because the underlying fundamentals are actually improving… but the expectations are so low that it shouldn’t be too difficult for Sprint to surprise a lot of people with how much it is doing… to me it feels like AT&T Wireless a few years ago… which I recommended hard because it was unloved too… but it ended up being the target of a bidding war… and you could have done very well.

Here is the bottom line…

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