Buy, Sell, or Hold: Clearwire

In case of fire you're supposed to stop, drop, and roll... but what do you do if your stock collapses 62% in one year? Shareholders would still like to know the correct answer to this question after Clearwire (Nasdaq: CLWR  ) handed investors a rotten egg in 2011.

Despite the terrible year, traders on both sides of the coin have reason to be excited about Clearwire in 2012. Let's take a look at some of the things that could make you want to buy, sell, or possibly hold Clearwire this year, and at the end, I'll weigh in with my take.

Buy
With profitability still off in the distance, the primary lure to owning Clearwire is its vast spectrum portfolio in the 2.5 Ghz to 2.7 Ghz range.

Speculation has been swirling for months whether or not Clearwire would part with some of its precious spectrum in order to raise cash as opposed to turning to current WiMAX partner Sprint Nextel (NYSE: S  ) for another lifeline. In addition, MetroPCS Communications (NYSE: PCS  ) has been open to the idea of purchasing spectrum from Clearwire since it currently finds itself short on its spectrum needs.

Some have postulated that Clearwire's spectrum portfolio could be worth up to $5 billion if liquidated and that's even taking into account that Clearwire's spectrum bands are significantly cheaper per Mhz-POP (a measure of how many people are covered by each megahertz of spectrum) than its competitors at $0.17-$0.22 per Mhz-POP. In comparison, Verizon Wireless' deal to buy $3.6 billion worth of spectrum from Spectrum Co (a joint-venture of Comcast, Time Warner Cable, and Bright House Networks) priced at $0.69 per Mhz-POP. It's not a stretch to assume Clearwire's spectrum asset values will improve as spectrum becomes even scarcer.

Sell
Looking beyond the spectrum, short-sellers only need to focus on Clearwire's bottom line for a reason to turn and run in the other direction.

Clearwire has made it no secret that it's relying on Sprint's pocketbook to currently help it fund its business. Not only is Clearwire in the midst of a continuing cash crunch, but its decision to make the transition from its current WiMAX technology to 4G LTE is going to cost the company $900 million -- roughly $600 million for the 4G LTE network transition and $300 million for upkeep on the existing WiMAX network.

Not only is a constant cash-crunch a concern, the actual operations continued to disappoint. Despite rapidly growing sales, Clearwire's free cashflow reached an astounding negative $3.8 billion in 2010. Cumulatively, since 2007, Clearwire has burned through approximately $7.8 billion in cash!

Hold
Current Clearwire shareholders have to be thrilled to see the $39 billion proposed merger between AT&T (NYSE: T  ) and Deutsche Telecom's T-Mobile fall through. One of AT&T's motivations for purchasing T-Mobile was its spectrum, so it's quite possible AT&T or rival Verizon (NYSE: VZ  ) may approach Clearwire about acquiring some of its spectrum. What's more ironic is that even if the merger had been approved, the combined entity would still not have had as much spectrum as Clearwire currently possesses.

The verdict
Really, this comes down to whether or not Clearwire will sell its spectrum to raise cash or if it will take its spectrum down with the ship. Sprint Nextel alleviated some of Clearwire's cash worries by pledging to extend its existing contract with the company, but even that may not be enough cash for Clearwire to survive. I feel it's possible that a smaller-tier company like MetroPCS may buy some of Clearwire's spectrum, but it's unlikely that anyone will step up with a large purchase when it's very possible that Clearwire's spectrum can be had for cheap in bankruptcy court. With that being said, I'm maintaining my CAPScall of underperform on Clearwire throughout 2012.

What's your take on Clearwire? Share your thoughts in the comments section below, and consider adding Clearwire to your free and personalized watchlist so you can keep track of the latest news with the company.

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Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that's always rated a buy.


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