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Cramer on Monday urged viewers to sell cell-phone firm NII Holdings, a company that is late to the 3G wireless-phone party. While the stock is up big over the past few months, he said, that move is over.
Cramer deferred to Goldman Sachs’ Stephen Graham when making the call, citing the analyst’s recent downgrade of NII [NIHD
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] to “neutral” from “buy.” The stock is up 90% since Graham’s March 3 recommendation, compared to only a 32% gain in the S&P 500 and jumps of 64% and 73%, respectively, in Mexico and Brazil’s 64% and 73%.
Both Cramer and Graham said that NII’s momentum has stalled out, pointing to overaggressive subscriber growth targets and an increase in customers leaving for competitors and the number of subscribers with unpaid bills.
NII operates in Mexico, Peru, Brazil, Chile and Argentina, and the pace of new customers in Argentina especially seems to have peaked. Plus, the rate at which customers left the company jumped 40% last quarter, while the percentage of people not paying their bills climbed to 2.8% from 1.9% year-over-year.
Cramer’s biggest problem with NII, though, is its apparent inability to meet 3G demand. While some people think that Brazil and Mexico’s fourth-quarter 3G spectrum auctions will be a boon for NII, the Mad Money host disagrees. NII will still need to build out a 3G network to accommodate any spectrum it acquires, which can be cost prohibitive, and it’s a factor that Cramer thinks many people have overlooked. NII might not be able to afford such an undertaking without taking on immense debt or diluting the equity by selling new shares.
Better for investors to go with Latin America’s biggest wireless company, America Movil [AMX
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], which started its 3G upgrades over a year ago, Cramer said. AMX would be able to take advantage of those spectrum auctions in ways that NII just can’t yet. Also, America Movil is keeping its customers, while NII has been losing them. And there’s a solid investor base here, with billionaire Carlos Slim owning 32% of AMX and AT&T owning 17%. NII can’t tout such staunch support.
The bottom line? For Latin American mobile, sell NII and buy America Movil.
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