Today we saw the bull rotate in telecommunication stocks. Particularly Verizon, AT&T, Windstream, as well as Qwest and Sprint. Close watchers of the show know that we've been big fans of the first three for more than a year now...They have gotten so low that their dividends gave you such a large return relative to stock, and we can get our arms around Qwest as of tonight...go pick up some AT&T or Verizon, or run the risk of missing what's left of their accidentally high yielding dividends courtesy of price appreciation. - CNBC's Mad Money 12/7/2009
On Monday night, Jim Cramer declared a new bull market in the traditionally defensive telecom sector. He thinks that the market shifted to the benefit of telcos as the major market indexes were flat but some major telecommunications stocks had a nice day. Cramer often makes pronouncements such as this on partial data, but one day of better than average trading does not a bull market make. He believes the recent better than expected jobs report could be a bullish sign for the industry, as the enterprise customers have been among the weakest for the industry. Does he believe that the telecoms will lead the next phase of the rally, or is he continuing to back off his bullish thesis as he tries to help individual investors lower risk and get into a more defensive sector?
A week ago, Cramer was speaking to his audience about protecting their portfolio from a potential onslaught of short selling through buying stocks with attractive dividends (A Defensive Tone from Cramer). Last night's show seems to be a continuation of that message, although he did not mention protection from market declines specifically. All other things being equal for income investors, there is no denying that the dividend yields of telecoms are attractive relative to most any other sector.
Although Cramer was bullish on the sector and specifically Verizon (VZ), AT&T (T), Windstream (WIN) and Qwest (Q), he singled out Sprint (S) as a stock he would not buy here. This is particularly interesting because Sprint has actually started to show signs of life after a dismal few years. There is a lot of positive sentiment emanating from Sprint's acquisition of Virgin Mobile (VM) and over the last month Sprint is up nearly 40%. That is three times better than the performance of Verizon and four times better than the telecom industry's iShare benchmark (IYZ).
The recent appreciation in Sprint has not yet made us reconsider our Undervalued stance as of our latest report. Churn rates, long a thorn in Sprint's side, have finally started to show improvement although no gains in the company's core postpaid business. Sprint has bolstered its position in the profitable and fast growth pre-paid business with Virgin Mobile which already serves 5.2 million subscribers, and will complement the 5.7 million subscribers already at Sprint's Boost Mobile brand. It is an interesting strategy, but it is also likely entails more risks for investors. Perhaps that risk explains why Cramer wants to steer investors to the stability of the other telecom industry giants.