The hotly contested cellular market has pushed investors to choose sides with their stock purchases. While the industry is still highly competitive, holding stock in more than one of these companies may now be a great strategy. For that reason, I will discuss why owning both providers, like AT&T (T) and Sprint-Nextel (S), could be an excellent idea for a number of investors.
Sprint has become the darling of a number of smartphone users, thanks to the recent developments of "unlimited" data plans. While both AT&T and Verizon (VZ) both opted to "throttle" or place restrictions on data transfer rates, Sprint opted to avoid this policy, allowing the US' third largest provider to enjoy some positive press at the expense of its larger competitors.
That trend appears likely to continue, for the time being, as Sprint begins rolling out phones, like the LG Viper, for its soon-to-be-launched LTE network. With new, environmentally friendly phones and an exclusive network, Sprint has to potential to become an investment dynamo, something that drawing the attention of investors like Deutsche Bank, which recently added Sprint to its short-term buy list.
The stock has dropped more than 35% in the past year, but I see that as a positive, since its $3 price gives it a low-risk, high-reward potential. With the company expecting to begin launching its new network during 2012, the stock already has nearly 30% of upside potential with a one-year target approaching $4 per share.
Sprint capitalized on the news of its data plans, as the company enjoyed an increase in year-to-year revenue for the 4th quarter. The company recently announced that it would continue to offer unlimited data when LTE is introduced this year, a move that I expect to help fuel an increase in subscribers and in turn, a profitable situation for investors.
Because the various providers offer similar phones, pricing and service, perception can play a big part in the fortunes of cellular companies. Sprint clearly has some much-needed momentum right now, and I think its low share price and growth potential make it a great stock to pick up at the current time.
While Sprint enjoyed a boost from its data plan decision, part of its success came at the expense of AT&T. Currently the 2nd largest network, the company joined Verizon in throttling access for the heaviest data users. Like Verizon, AT&T faced a backlash for its decision. The negative publicity was strong enough that it took a release of the iPhone 4S to help the company post a modest revenue gain in the 4th quarter.
In spite of its close relationship with Apple (AAPL), the company has begun looking to other cellular manufacturers to improve its lagging sales. Many have been waiting for the introduction of Nokia's (NOK) Lumia 900 smartphone, which runs on the Windows Phone 7 software of Microsoft (MSFT). Although many analysts are skeptical about its appeal, the hope is that its lower price point will help AT&T to begin winning back clients that it has been losing to Verizon.
Although things have been tough for AT&T, the climate may be changing in its favor. The company has been working to ratify a new labor agreement, something that should provide a short-term boost for the company on Wall Street. An anticipated summer 2012 release of the new iPhone is likely to spur both sales and the stock price.
AT&T has enjoyed a couple of factors that continue to make it a very good investment. First, the company has been able to resist the industry trend of crippling debt while continue to turn a profit. The company's debt to equity ratio is just over 60, suggesting that it is well run in spite of high industry costs. In addition, the company is sitting on nearly $35 billion in operating cash and over $6 in free cash flow, offering it great flexibility in the future.
While Verizon continues to be a very solid investment, there are a number of reasons to look at both AT&T and Sprint for future investment. The first benefit of these two companies is cost of investment. Sprint is particularly enticing with its low price and big upside; this makes it perfect for beginners to add to even the most modest portfolio.
The dividend is AT&T really shines. Although its one-year target is somewhat flat, investors can count on its hefty 5.6% yield (a number that eclipses the 5.2% offered by Verizon) to provide a dependable return. The company is a dividend aristocrat; analysts view this status as a positive for hedge funds and other institutional investors.
Investing in cellular telephone providers can be a profitable option for many people. Although Verizon has jumped to the top spot in the industry, there are compelling reasons to take a look at companies like AT&T and Sprint for future investments. Both companies have been solid performers, and both continue to grow, even in this competitive sector. The stock for both companies has a better price to book ratio than Verizon, suggesting the potential for rising prices in the future.
I would recommend AT&T, especially for investors focused on dividend stock. I view Sprint as a wonderful mixed dividend and growth holding. I really like it for young investors, due to its modest dividend and its strong upside potential.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.