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Is This Also-Ran Telco Ready to Run?

Friday, 18 Dec 2009 | 6:46 PM ET

Sometimes even the worst stock is worth buying when the price is right, Cramer said Friday. Case in point: MetroPCS, which is down 50% for the year. Expectations for the company are low, and with good reason, but the Mad Money host said they might be too low.

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That dim outlook is a result of the increasing competition in the pre-paid wireless market. Where once only MetroPCS and Leap Wireless International virtually shared the industry, Sprint Nextel is now a player, and carries with it a coverage network as big as AT&T and Verizon Communications .

But Sprint’s elbowing in doesn’t necessarily push MetroPCS out. The company has streamlined its cost structure by limiting its own network to densely populated cities. As a result, MetroPCS has been able to attain profits on par with the major wireless carriers, even though it charges its customers less. Right now the monthly cost per subscriber for MetroPCS is $25. So, even a $35 pre-paid plan will generate decent margins for the company.

That $35 is no random figure. Many analysts have worried about falling pre-paid plan prices, but there is a floor. Cramer founded it by looking at the variable per-subscriber costs of other carriers, specifically Sprint and T Mobile. Based on their costs, the minimum sustainable price for pre-paid plans is about $35. Even in this worst-case scenario MetroPCS should still be worth near $9 a share, which is 22% higher than Friday’s close.

The story of MetroPCS is more than just withstanding an onslaught of negatives, though. There are positives here, too. The pre-paid wireless market is showing year-over-year subscriber growth rates in the mid-teens. And pre-paid pricing is perfect in an environment of double-digit unemployment. Not to mention, MetroPCS and Leap Wireless have been the only pre-paid carriers to take market share, and they continue to be industry leaders.

Cramer’s recommendation? MetroPCS could work as a speculation play. He said to use the yearend tax-loss selling to buy the stock on the cheap. There’s a good chance the share price could rebound as buyers reenter the market in January.

Call Cramer: 1-800-743-CNBC

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