Cramer, Like Most, Has It All Wrong Regarding Sprint

Aug. 1.12 | About: Sprint Corporation (S)

By now, you as an investor fall into one of two categories: You either bought Sprint (NYSE:S) under $3 and have returned enormous gains or you regret not buying Sprint and capitalizing on the value that apparently everyone now notices in shares of the company. I personally fall under the category of those who purchased below $2.50 a share, which has proved itself to be a wise investment. But at the time of my purchase, Sprint investors were on a lonely bandwagon, and were constantly surrounded by bears who seemingly overshadowed any signs of progress with rumors of bankruptcy that kept the stock from trading with any level of momentum. However, all has changed, and as Sprint trades higher we continue to hear the echoes of those screaming BUY! BUY! BUY!

My reasons for buying Sprint have always been very simple: If the company was worth $5 a share in 2011 with falling subscribers, declining revenue, and no signs of competitiveness or profit, then what is it worth with increased revenue and subscribers with the hottest technology device of the last decade? Of course problems still exist even with these fundamental changes, however, common sense suggests that these improvements make Sprint significantly more valuable than at any point in 2011, and much more than the $2.30 price that it hung around for much of the first two months of 2012. To me, the logic of a Sprint investment seemed too apparent to argue, and I believed that all those who opposed were simply caught in the moment of a stock price and were not taking the time to look or consider the whole picture of the company's progress, or just how meaningful the addition of the iPhone was to the business of Sprint.

Following Sprint's recent rally beyond the $3 range, as it approaches $5, it feels as though the bandwagon is getting much more crowded. Almost all pessimism has turned to optimism as debates over whether it's protected from bankruptcy have become facts that Sprint manages its debt well and is positioned to exceed the growth of the telecom space. And perhaps there is no better example of this change in perception, which has been changed due to stock performance, than with CNBC personality Jim Cramer, who has drastically changed his outlook with the performance of this stock, a lesson that we should all strive to avoid. Allow me to explain:

On Thursday July 26 Jim Cramer created additional excitement for shareholders when he called Sprint the "Holy Grail of Speculation". Cramer pointed out a lot of obvious positives, which have consequently led to its massive rally over the last week, such as its iPhone deal, 1.5 million new iPhones with 40% being new customers in the most recent quarter alone, its unlimited data plan, an increase in post-paid subscribers, the benefits of shutting down Nextel, and the upside that may lurk once the stock surpasses $5 because of mutual and hedge fund interest. These are all catalysts that I and other bulls have been discussing for the last few months (with the exception of data from current quarter). And I have said repeatedly that with the iPhone Sprint is a different company, as it simply couldn't compete with AT&T (NYSE:T) or Verizon (NYSE:VZ) without the iPhone. In other words, the iPhone is a game changer.

I must say that there is nothing wrong with an investor changing his or her outlook, as key developments are sometimes company changing and can lead to new upside. Such is the case with Sprint, as all of its recent success would not be possible without the iPhone. This statement is not an opinion, it is a fact, as Sprint was forced to compete with T and VZ before it had the iPhone and its fundamentals were atrocious. Yet combined with unlimited data, a lower depository, and the iPhone, Sprint can compete, which should have been a major indication of value back when the stock was trading below $2.50.

In 2011, before the iPhone, the stock was trading near $6, its fundamentals were reflecting a five-year trend of losses, but with the iPhone, investors should have known that business would increase, and that the stock was worth far more than $2.50 a share, if it was worth $5 in the year prior. Therefore, for those investors who are now kicking themselves for missing Sprint's 70% three month rally, you deserve it, because these were facts and catalysts that anyone could've seen, yet some were too blinded by the performance of the stock, causing them to lose out on massive gains.

Despite the obvious advantages that are present with the addition of the iPhone both analysts and Jim Cramer have been particularly bearish up until its recent rally. Now that it's trading higher we are seeing a change of opinion regarding the telecom company, but when it was presenting true value everyone was saying sell. Back on October 12, which was seven days after Sprint announced that it would be selling the iPhone with unlimited data, Jim Cramer rated the stock as a sell on a day where it closed at $2.38. And on December 5, with the stock at $2.60, Cramer reiterated his sell, meanwhile rating McDonald's (NYSE:MCD) a Buy at $95.70, a prime example of why your own due diligence is always required.

As you can see, Cramer has been a bit unpredictable regarding his outlook on Sprint, but one thing is for sure; Cramer, like most investors, let price performance dictate their opinions, at least with Sprint. Some may say that in October and December of 2011 it was impossible to know if the iPhone experiment would be successful. However, common sense suggests that it would result in more sales versus without the iPhone, as the iPhone is the most sought after device in technology, and since the CEO of Sprint has said on multiple occasions that its struggles were in part due to its inability to sell the iPhone, investors should've known it would attract new customers. Therefore, all should have connected the dots and seen that with an unlimited data plan and with the new iPhone that Sprint could become competitive, and worth much more than at any point in 2011.

Yet on May 23, 2011 Cramer once again ranked Sprint, but this time with a buy, as the stock was trading at $5.50 and without an iPhone or the announcement of an iPhone. Back in May 2011 I was saying that Sprint was doomed to fail. Yet because of its price and trend investors fell in love, ignored the fundamentals, and believed that it was logically priced at $5.50 without the presence of the iPhone for its customers. This is yet another prime example of price dictating perception of a company, a fault that often attracts even the wisest in the industry, and a trap that we must all strive to avoid. Because there is no logical explanation of how Sprint was a buy on May 2011 at $5.50, or even a buy on July 26, 2012 over $4, but was not a buy in October or December of 2011 when the stock was priced below $2.60, while the company was actively selling the iPhone, and that it would lead to increased sales and subscribers.

The point to Cramer's various outlooks is to show how most investors react to price. I think anyone should be able to see that when the stock was trading higher, Cramer was bullish, and when it was lower he was bearish. And although it's easy to point and say that Cramer doesn't know what he's talking about, I must remind you that Cramer is a very decorated professional in the industry, and is very intelligent, but fell into a common trap that 99% of investors often face, which is letting price performance dictate their outlook, a recipe for disaster.

I will conclude by saying that I once watched an interview with Warren Buffett where he discussed valuing a company. And to summarize he said that he looks and studies all the fundamentals, catalysts, new contracts, and all data related to the company and then determines how much it is worth without looking at the stock price. To me this is a perfect example of how investors should value a company. We should not wait for a stock to rise before saying that it is a buy, as it would have been much wiser to connect the dots and see the obvious value in a company such as Sprint, that was trading far below its worth. Because far too often we make investing more complicated than it is, and try to time all the trends, and don't realize the game of roulette that is being played by attempting to capitalize on day-to-day gains of the market.

My buy and hold strategy in Sprint has been very rewarding, and it hasn't changed with the price of the stock, or the volatility of the market; it remains consistent, and centers around the fact that Sprint lost customers by not selling the iPhone, and now with the iPhone and an unlimited data plan it is competitive and worth far more than at any point in the last three years. Until the stock reaches a price beyond its worth I will continue to hold.

But be aware that once that price is reached, and Sprint is no longer undervalued, you will most likely hear the echo of others telling you to buy, which is when you must use common sense, perform your own due diligence, and not get caught in the moment of a stock's price, because if you would've viewed Sprint with both eyes open, back in January, then you would be enjoying the realization of a 70% gain, while others are just now starting to buy.

Disclosure: I am long S.

Additional disclosure: The opinions expressed in this article are for informational purposes only and should not be used to make any investment decisions.