Cramer's Next Big Spec Play
It's time to make Sprint Nextel your next big spec play, Jim Cramer said Friday on CNBC's "Mad Money." In light of recent events, he's calling Sprint the "Holy Grail of speculation."
Previously, Sprint has been nothing more than the "perennial third-wheel" in the U.S. wireless business and the company has struggled for years. So, why is Cramer so sure it's going up and not down?
Whenever you have a stock trading below $5 per share and it breaks through that level, he said, you know you're getting a real turnaround. Cramer noted the $5 mark was important, because it opens up the door to a whole new class of buyers — most big mutual funds and hedge fundsaren't allowed to own stocks trading under $5. With more buyers in the mix, stocks tend to go even higher, he said. That's why he likes Sprint right now at around $4.30 a share — roughly 70 cents away from that all-important threshold.
Sprint also reported a "phenomenal" second quarter Wednesday night, which Cramer said further solidified the firm's comeback story as one of the greatest out there. Over the last six months, Sprint's share price has doubled and the stock surged 20 percent on Thursday alone. But despite all this, Cramer urged anyone who owns Sprint not to ring the register just yet.
Before, the stock was a trade, he said. "Now I think it's an investment."
The "Mad Money" host listed three main prongs that he said allowed Sprint CEO Dan Hesse to engineer the company's incredible comeback.
First was Hesse's deal with Applethat allowed Sprint to score use of the iPhone, after which Sprint was able to sell 1.5 million iPhones in a single quarter, and to a much higher portion of new customers than did AT&T or Verizon. Second, Sprint stands alone as the only major wireless provider that offers unlimited data usage. "On virtually every key metric [this quarter], Sprint's results were as good as or better than the two big dogs [AT&T and Verizon]," he said.
The third piece of the puzzle is all about Nextel, Cramer said. Hesse executed a shutdown of more than 9,000 Nextel sites, which Sprint acquired back in 2005. The move allows Sprint to use all of that freed-up spectrum to give its subscribers faster data service, he said. Meanwhile, the firm is working overtime to switch the more than 3 million Nextel subscribers it still has over to Sprint instead of Verizon, where most former Nextel users went.
Still, how do we know this sudden positivity isn't just a flash in the pan?
Cramer pointed to three key factors — a booming wireless business, Sprint's stellar metrics and corporate cash flow. The firm generated $209 million in free cash flow for the quarter and retired $1 billion worth of debt maturing in 2013. He also thinks Sprint will soon turn back to bonds again — enticing potential bondholders — and said the nation's third-largest wireless provider has been steadily increasing operating revenue year-over-year.
The bottom line: After Sprint's incredible quarter, there can be no doubt that Dan Hesse’s turnaround is the real deal, Cramer said. "I think this $4-and-change stock is headed north of $5," he said. "And when that happens, the big institutions will be allowed to buy, the analysts will be forced to upgrade and the sky will be the limit."
When this story was published, Cramer's charitable trust owned Apple
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