Dear Mr. Berko: In March of last year, you recommended Sprint, and like a sucker I bought 2,000 shares at $3.65.
The stock market has moved like a rocket since, but Sprint is only $4.25. It wasn’t worth my time to read your column, and if you include the time I spent to research your research, I’ve lost money on your lousy recommendation.
So try to answer my next question: Is it time to sell the stock?
I would appreciate a straight “yes” or “no” answer from you for once. And in the same month, I asked you about General Electric in an e-mail and you told me to buy that one, too.
GE sucks. It hasn’t done a darn thing since, and it’s only up 75 cents.
Two lousy picks in a row. So how abut giving me your sorry opinion again on GE, which is probably not worth a damn. – N.O., Columbus, Ohio
Dear N.O.: Yes, I think you should sell Sprint (S, 52-week high of $5.31 as of May 25). However, others who bought the stock should continue to hold it, and if they have a spare 1,000 or two, they might buy a few more shares.
Sprint, as I suggested in the March column, could trade at the $18 to $21 level in the next three to five years. The consensus on the Street is, by 2014-2015, S could earn $1.20 and might even pay a small dividend between 10 cents and 20 cents per share.
But I did not just recommend Sprint last March. I told the reader to simultaneously buy Sprint and the Sprint 7 percent ML Depositor Trust, which was trading at $15.50 and yielding 11 percent. This combination has, in the past, always been my Sprint recommendation. The purchase of an equal dollar amount of Sprint Common at $3.65 plus Sprint’s 7 percent ML Depositor Trust (PYG) would provide investors a 6 percent current return while waiting for the new CEO Dan Hesse to do his magic.
Meanwhile, PYG is now trading at $23, which would have been a sweet gain if you had followed my advice. Still, I believe the common can be a good three- to five-year investment.
Hesse is doing a yeoman’s job at Sprint. He has improved S’s once-tortuous customer service by orders of magnitude, simplified S’s rate plan combinations, lowered S’s churn rate to under 2 percent, added 650,000 prepaid cell phone users in the last quarter and, not including acquisitions, increased revenues by 1.5 percent.
Meanwhile, Hesse is using S’s solid cash flow and substantial reserves of $4.4 billion to reduce debt. And an enormous savings in cost and manpower will occur in early 2013 when S begins to phase out its Nextel operations.
S is the only carrier maintaining two networks, one of the many burdens foisted upon Sprint by Gary Forsee, its former worthless CEO.
Sometimes patience is rewarded, and I think S is one of these sometimes.
General Electric hasn’t left the starting gate since I responded to your e-mail last March, though it did raise its dividend twice, and at 56 cents it yields 3.2 percent. And even though earnings are expected to increase this year to $1.28 from last year’s $1.10, and even though the dividend is expected to increase to 62 cents, and even though earnings four years out are expected to triple, I definitely think it would be best for you to sell (GE, 52-week high of $19.70 as of April 30) and take a teeny gain.
But I would encourage long-term investors who seek quality growth to accumulate the stock. In the coming four years, I believe GE could earn more than $3, that its dividend will be at least a dollar and the stock price could double. GE should be a core investment for every patient long-term investor.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at firstname.lastname@example.org.