By Andrew Samuels
The five stocks represent the fiercest competitors in the wireless industry. The wireless arena offers the potential for huge gains as some operators in this space trade at significant discount to fair value. However, some operators are to be avoided because of their overvaluation. This article separates those that can make you money and those that cannot.
Clearwater Corporation (CLWR) - Clearwater Corporation operates in the 4G sector of the wireless networks. Currently it is trading around $1.80, which is $0.6 above its 52-week low. The stock is not profitable with its earnings per share at -$17.67. The company recently beat consensus earnings expectations by $0.06. CLWR’s return on equity is -58%, with an operating margin of -161%. Competitors Verizon Communications (NYSE:VZ) and CenturyLink (NYSE:CTL), in contrast, have positive operating margins of 19% and 22%, respectively. Additionally, VZ offers a dividend yield of 5.30% and CTL offers a dividend yield of 7.70%.
Despite these negative fundamental comparisons, it is important to recognize the greater macroeconomic factors affecting CLWR. Network providers have seen consistent increases in demand and a continual need for greater network capacity. Companies will begin turning to the more efficient 4G networks to increase profitability. As a result, CLWR could see rapid growth in the next couple of years. Already the company posted a stunning 133.70%. quarterly revenue growth rate. The risks may be high as larger operators may attempt to maneuver around the company, however, there is significant upside for CLWR as companies shift toward 4G/LTE networks. For the aggressive investor, I would buy the stock.
Vodafone Group PLC (NASDAQ:VOD) - Vodafone is a global mobile communications company. Currently it is trading around $29, which is near its 52-week high of $29.75. The price-to-earnings ratio is 13 and its earnings per share is $2.20. The price-to-earnings ratio is lower than other companies in the communications services industry given the industry average of 24. Additionally, VOD posts a return on equity percentage of 8.15%, which is on par for the industry. Vodafone’s quarterly revenue growth is 4.10%. The stock offers a semi-annual dividend of $0.49 and a dividend yield of 5.2%. Competitor AT&T (NYSE:T) offers a dividend yield of 5.8% from its quarterly dividend of $0.43. In regards to operating efficiency, the company has a 20% operating margin, which indicates that VOD maintains a healthy business within the industry. Handsets and service drive margins for VOD, with most positive growth coming from emerging markets. A technical analysis of the stock reveals a positive divergence of the MACD. This indicates an increase in buying. Additionally, the stock has had a definite upward trend. Additionally, the stock has turned resistance at $28.3 into support. The consistent revenue growth, the effective management of assets, upward trend, and a decent dividend yield indicate this stock is a buy.
NII Holdings (NASDAQ:NIHD) - A Nextel subsidiary, NIHD is a Latin American service provider that is trading around $24, above its 52-week low of $22.26. The price-to-earnings ratio of 13.72 is modest given its growth opportunities in Mexico, and Brazil. A look into the company’s management reveals a 15.32% operating margin and a 9.59% return on equity. 1.6 million net new subscriber additions are expected for 2011. However, operating expenses have not been kept in check, growing 25% year-over-year to 1.5 billion. In its latest quarter, NIHD lost 2 cents compared with earning 68 cents per share last year. Operating income ended up down 4% to $212 million. Technical analysis reveals a downward trend. The stock has met resistance around $24.90. The company has experienced several breakaway gaps over the past week. The most recent gap led to an upward trend. Despite that the long-term trends indicate a downward movement. The negative technical trend and on-par fundamentals without a dividend offering lead me against buying NIHD for the value investor.
Sprint Nextel Corporation (NYSE:S) — Sprint Nextel, a major competitor in the wireless communications industry, is currently trading around $2.9. The stock is near its 52-week low of $2.10. A look into the fundamentals of the company exposes a rather negative outlook. The stock is not profitable and had an earnings per share loss of $0.84 over the trailing twelve months. It posted a 2.20% increase in quarterly revenue growth. The return on equity is -17.56%. Furthermore, the stock does not offer a dividend. The industry average dividend yield for the subsector is about 5.4% due to the inclusion of VOD, VZ and T. I do not see S coming out of its slump anytime soon given Verizon's and AT&T's dominance in the U.S. market. Technical analysis exposes more of the same. The stock has a consistent negative trend. Additionally, the stock recently closed below its 50-day moving average, which has bearish implications. For the value investor I look toward wireless communications stocks like VZ and VOD that offer dividends and currently are posting positive earnings growth. Likewise, this stock does not garner a buy rating.
America Movil, S.A.B. de C.V.A. (NYSE:AMX) - America Movil is a wireless network operator that runs multiple services in Latin America. The stock is trading around $26, which is near its 52-week high of $29.81. The price-to-earnings ratio is 14.5, which is on par with the industry average of 13.3. An analysis of the stock’s fundamentals reveals a healthy company. The current return on equity is 33.04%. The stock has posted quarterly revenue growth of 7.50%. It is important to note that America Movil’s operating margin of 22.68% is significantly better than the industry average of 9.27%. The company is managing assets more efficiently than the majority of the industry. This indicates long-term growth potential and an increase in profits as the business expands. Furthermore, the stock offers a dividend of .26 with a yield of 1.00%. Although this figure is lower than I would like to see given the company's more than 50% market share in its home market, effective management and strong revenue increases will pay benefits in the long run. For a more conservative portfolio, Telefonica S.A. (NYSE:TEL), a competitor of AMX, offers a $1.70 dividend and a yield of 8.70%. Looking into the stock’s charts reveals similar bullish trends. The stock closed above both its 13-day and 50-day moving averages. Likewise, the stock has maintained a positive divergence from the MACD. Although the stock has exhibited periods of volatility, the positive momentum, bullish technical signals, effective management, and increasing revenue growth indicate this stock is a buy.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.