Bull Stocks- Ring Ring

Continuing my random tour de industries in my bull stocks series, I'm stopping at the cell phone providers. Perhaps the most important characteristic a stock can have in a scary environment like this is a nice big fat SAFE dividend (for a definition of such a dividend, see Altria- MO). There are two gems with just such a dividend in the cell phone space- Verizon (VZ) and AT&T (T). Verizon sports a sexy 4.9% yield. These dividends protect a stock from their price getting hammered because as the price goes down the yield goes up, encouraging people to buy the stock just for the yield, pushing the price right back up. VZ has become somewhat stagnant but looks to revive that with their FiOs internet system (fiber optic super fast internet) that is stimulating growth. VZ is the cheapest of the wireless providers on the last 12 months earnings and the second cheapest on forward earnings.

AT&T has an almost as attractive 4.6% yield. AT&T, in my opinion is a little more bogged down, just from being a bigger company with more avenues of work, but that also makes it safer than Verizon. Trading at less than 10x forward (2009) earnings, T is downright cheap. It is also better than VZ at translating revenues into earnings, sporting higher margins that are improving. However, there is a lot of growth priced into those forward earnings, exposing the stock to downward revisions by analysts, but with a great dividend, it's hard for the stock to get hit too much.

If you like some international flavor in your life I give you American Movil. If you have a cell phone in or south of Mexico, these guys are probably your provider. The growth is awesome, the company has been growing sales at 25-30% and translating that into 28-30% growth in operating income. Analysts have the stock priced from 28-29% growth each of the next 2 years (2008, 2009), and I think that's conservative. The dividend and, hence, the protection, aren't there however. If you think I'm crazy, I refer you to Carlos Slim, the richest man in the world, owns well over 20% of this company.

Why do I think the time is right for these 3 providers? There was a lot of talk over the last month and even last week about how all these guys are in trouble because competition is getting a lot more severe. Competition amongst cell phone providers severe?!? No kidding, it's been that way for 5 years. These guys are integrating their operations and signing their customers up for more of their products at once (i.e. Cell + internet service), additionally more people are getting data and internet over their phones, offering more revenue and higher margins. It's not like new cell providers are entering the market, if anything consolidation will happen in the US market going forward, the sector is beat down unfairly.

If you're looking for a zero-equity/long-short play, I suggest creating a portfolio of 1 or more of the names above on the long side, and short Sprint. Sprint is the clear laggard in the sector in just about every aspect. Because of Sprint's stock price being so low(<$10), there will be some days where this will move against you because of the high % moves S makes, however over a shorter period (1-2 months) this should pay off very nicely, unless Sprint gets bought out, which is the only reason I don't endorse this as a long term strategy. I currently am long T and AMX and short S on my investopedia portfolio.