Telco’s Biggest Loser This Year
Web Editor, "Mad Money"
Telecom giant Verizon Communications, down 15% over the past six months, is the worst-performing stock in the worst-performing sector in the S&P 500 for the year so far, Cramer said on Monday. But he thinks the second half of 2010 could tell a much different story.
Verizon has “huge opportunities” in the wireless business, Cramer said, where it owns 55% of the second-largest carrier in the industry, Verizon Wireless. And with the “reaffirmed rumors” that the company will start selling the Apple iPhone in January 2011, “I think … Verizon should lead the industry in terms of market share gains,” given how much of a game-changer the handset was for AT&T .
Plus, Verizon has barely started to “surf the mobile Internet tsunami,” Cramer said. Only 17% of the company’s wireless subscribers own true smartphones, leaving open a huge opportunity for revenue growth as they make the switch. Verizon also is rolling out its fourth-generation LTE wireless network, which will cover the 30 largest cities in the US. Building out its wireless infrastructure is a top priority – as CFO John Killian told us back on Feb. 23 – and that means even faster connection speeds and fewer dropped calls.
In the meantime, though, Verizon is still doing well. First-quarter 2010 sales of smartphones running Google’s Android operating system were up from Q4 2009, and FiOS, the company’s triple-play offering – voice, cable, Internet – is going strong. Last quarter, FiOS’s revenue growth was up 40% year-over-year, with the count on FiOS TV customers now at 3 million.
While VZ is down 15% for the year, expectations are down as well. Analysts hated the company’s first quarter, hence the 21 “holds” and just 13 “buys” presently on this stock. Therefore Cramer doubts that Verizon will disappoint the Street when it reports earnings next Friday – the estimates are already too low. He also thinks net subscriber additions should improve versus the previous quarter, wire-line margins should hold steady, and there should be growth in the data average revenue per user.
And he expects management to tout some serious optimism about the next six months.
Worst-case scenario, though, there’s always that fat dividend yield – 7% – to fall back on if Verizon doesn’t perform as expected. If the stock sinks lower, then investors just have another opportunity to buy VZ with an even higher yield.
Tune into Mad Money all week for Cramer’s series on the “Biggest Losers,” or the most damaged stocks in the most damaged sectors in the first half of 2010. But unlike the contestants on that popular NBC show, Cramer’s hoping these names regain their lost pounds, or points, and he thinks they will. Telecommunications was the biggest loser, dropping 8.8% as of last Friday. Still to come? Energy, materials, health care and information technology. So watch every night at 6 & 11 PM ET on CNBC for Cramer’s picks from those key sectors.
When this story published, Cramer's charitable trust owned Apple.
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