Mad Money

This Telco Spec’s Better Than Verizon?

Qwest Communications has shed its status as a single-digit sucker’s bet, Cramer said Thursday, and is now a legitimate comeback company. Institutional investors are piling into the stock, and he thinks retail investors should, too.

“The technicals say Qwest is a screaming buy,” Cramer said.

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Shares of Qwest , a regional telco operating in the Western US, plunged to $2.05 in late 2008 from over $10 the year before, but increased demand since the bottom – for the company’s products and, as a result, the stock – has propelled Q back toward $5. Investors were buying Qwest on pullbacks at ever higher levels, which technical analysts see as a sign of strength, and that brought the share price to $4.70.

Off the Charts

Qwest struggled against that level until last week, when it finally broke through, and now one of Cramer’s favorite chartists predicts another leg up could be coming. And it would be fueled by the continued institutional buying, especially because the stock has crossed the $5 mark. These investors wouldn’t touch it otherwise, Cramer said, because they don’t like owning a sub-$5 name.

But that’s not a problem anymore, and these guys are buying hand over fist. According to the “on balance volume,” a major technical indicator that relates volume to share price, Qwest’s rising share price has been accompanied by high volume, and that means the big-money funds are behind this recent breakout.

Cramer thinks the fundamentals here are just as bullish. Last year’s partnership switch to Verizon from Sprint Nextel set up some easy compares for Qwest in 2010. And the improved numbers should be helped along by a number of cost cuts as well. In addition, the company plans to reduce its debt by 25% in the next year.

Cramer said Qwest could snatch up local telcos like Frontier Communications and Windstream as well. He also likes the safe 6.4% dividend yield, which offers a touch of protection when you’re speculating. And Qwest is a spec stock, because the company will live or die with an economic rebound in the US. Without it, Cramer said, there’s no potential for revenue growth here.

It’s the technicals, though, that make the most bullish case for Qwest, Cramer said, and the fact that it reached past the $5 level, bringing in a flood of big-money interest. That lends Q a degree of excitement that seemingly safer names like AT&T and Verizon just can’t match.

“Qwest has gone from a speculation to an investment,” Cramer said, “and that process should drive it higher over the next year.”

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