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Wireless Stocks Getting Trashed: LEAP, PCS, TNDM, USM, NIHD

|Includes:ANEN, CYCL, FTWR, ICOG, IQNT, NIHD, NTLS, T, Telephone and Data Systems, Inc. (TDS), TMUS, USM, WRLS

Leap Wireless International, MetroPCS Communications, Neutral Tandem, United States Cellular, and NII Holdings were sinking today whether they deserved to or not.Were the S&P 1500 Wireless Index just today's biggest loser, it might be easy dismiss it. After all, MetroPCS Communications (PCS) and Neutral Tandem Inc. (TNDM) - both members of the S&P 1500 - are down by double-digit percentages. Simultaneously, though not in the S&P 1500, double digit losses from Leap Wireless International Inc. (LEAP) and ICO Global Communications (Holdings) Ltd. (ICOG) aren't helping the cause. That's enough bad apples to spoil the bunch for the day.

A closer look, however, indicates today's decimation isn't a one day fluke. A lot of these names have been getting trashed for a few weeks now; the S&P 1500 Wireless Index is down 18.5% from its peak on May 20th. The S&P 1500, for comparison, is up 10.7% since then.

The knee-jerk reason most investors might offer for this weakness is poor results. But, that wouldn't be accurate... not in the least.

Though hardly all of them did so, a surprising number of stocks in the group managed to remain profitable over the prior twelve months (which includes the heart of the recession). NII Holdings Inc. (NIHD) boasts a trailing twelve month P/E ratio of 12.8 or 17.9, depending on whether or not one excludes one-time charges. Centennial Communications Inc. (CYCL) and United States Cellular Co. (USM) also profited to various degrees, depending on the accounting opinion.

Point being, the group isn't anything close to being the walking disaster most industries were in 2008. Yet, these stocks aren't even able to tread water now.

The next possible reason for the current suffering might be that fiscal results are just now starting to suffer. The logic makes sense, but again, the numbers don't add up. 

Leap Wireless just posted a 30% improvement in Q2's adjusted OIBDA (adjusted operating income before depreciation and amortization). Telular Corporation (WRLS) said it increased revenue by 16% between Q1 and Q2 of this year. FiberTower Corporation (FTWR) revenue increased 6% between the first quarter and the second quarter, while revenue grew 31% on a year-over-year basis. Lesser-known Anaren, Inc. (ANEN) reported record net sales for its fiscal 2009 fourth quarter..... $43.8 million, up 28.0% from the $34.2 million generated in Q4 of last year.

Of those four stocks, only FTWR shares are in the black though, and even that seems to be a struggle for the stock.

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On the flip side, MetroPCS profits fell 48%, not to mention fell well short of analyst expectations. The company earned 7 cents a share last quarter against 14 cents per share for the same quarter a year earlier. The market was looking for earnings of 13 cents. Shares were off nearly 30%, but understandably so.

There are two related investor 'take aways' here.

The first one is simply that - in the short run - the industry can and often does have more influence on a stock's price than the individual company's performance does.

Second, in the long run, errant industry trends can create value for faithful and patient investors. There are some really great (and not so great) values in the group in the wake of the recent pullback. United States Cellular, NTELOS Holding Corp. (NTLS), and Telephone and Data Systems Inc. (TDS) come to mind first.

(A third take away might be that bigger isn't necessarily better.)

Bottom line: A stock is only of value if it's going to rise immediately after an investor purchases it. Based on the bearish momentum we see from the group right now, as evidenced by the S&P 1500 Wireless Index, now may not be the right time to go fishing. It may, on the other hand, be the right time to start picking your targets.

Editor's long-term picks: NIHD, USM, NTLS


Below is a fundamental snapshot for the whole group, sorted from biggest (by market cap) to smallest.

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Stocks: TDS, NTLS, ANEN, FTWR, WRLS, USM, CYCL, NIHD, ICOG, T, IQNT, TMUS