Buy, Sell, or Hold: Clearwire

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When considering any stock for your portfolio, don't be swayed by just the positives. Examine its pros and cons, and decide whether its possible upside outweighs its risks. Let's take a look at Clearwire (Nasdaq: CLWR  ) today, and see why you might want to buy, sell, or hold it.

Based in Washington state and a subsidiary of Sprint HoldCo, Clearwire sports a market capitalization of about $800 million. The company is a wireless broadband service provider in the United States, offering mobile and residential services. Its retail brand is CLEAR, and as of the end of 2011, it had about 1.3 million retail subscribers and 9.1 million wholesale ones. The company has struggled recently, and its stock is down about 40% over the past year.

One things attracting investors to Clearwire is the business it's in -- namely, providing telecom services -- as demand for that is only likely to grow in coming years. More specifically, a key value for the company is its unused spectrum assets, though they're mainly in the 2.5 Ghz to 2.7 Ghz range, which isn't the most coveted. Still, Clearwire can generate some profits by selling some or all of its spectrum assets.

Clearwire is working on an LTE network with thousands of sites, which bodes well for it -- but it's not an early mover on that front. It's also an expensive endeavor.

Another plus is the company's revenue growth, which has been more than doubling annually, on average, over the past few years. That's terrific, but it's worth noting that earnings have not followed.

A not-so-great point for Clearwire is the regrettable bet it made on a WiMAX 4G standard. It's partnered with Sprint Nextel (NYSE: S  ) on that, but Sprint is going in another direction, and plans stop offering products running Clearwire's technology after 2013.

Another red flag, and a big one, is the company's debt, amounting to more than $4 billion. Given that the company's cash and short-term investments recently only totaled $1.2 billion and that free cash flow has been negative for a bunch of years (though the losses have been shrinking), that's a worry. My Foolish colleague Sean Williams has noted: "Clearwire is on the hook to repay... get this... $2,947,724,000 in debt in 2015. I'll give you a moment to pick yourself up off the floor."

Meanwhile, some of Clearwire's big investors look like they'll be bailing out, which could send the stock price down. It did announce a deal with EarthLink (Nasdaq: ELNK  ) recently, but that's not enough to inspire a lot of investor confidence.

Hold (off)
Given the reasons to buy or sell Clearwire, it's not unreasonable to decide to just hold off. You might want to wait, for example, for its debt level to fall significantly and for it to post a string of profitable quarters. You might also wait to see how successful its LTE network is.

You might also look at others in Clearwire's midst, such as Telefonica (NYSE: TEF  ) or France Telecom (NYSE: FTE  ) , which offer international diversification, though the former has suspended its dividend, and the latter plans to reduce it. They're also operating in some fast-growing economies outside Europe and other developed regions.

The verdict
I'm steering clear of Clearwire -- at least for now. It may perform spectacularly in the coming years, but there are plenty of other compelling stocks out there. Everyone's investment calculations are different, so do your own digging and see what you think.

Clearwire's attempt at building a game-changing 4G LTE network has been less than inspiring. However, analysts have identified three companies that appear set to lead the new technological revolution with the introduction of a new disruptive technology. Learn about them, for free, by clicking here to get this latest special report.

Editor's note: An earlier version of this article stated that Telefonica's dividend yielded greater than 10%. Telefonica actually suspended its dividend in July. The Fool regrets the error.

Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter, owns shares of France Telecom, but she holds no other position in any company mentioned. Click here to see her holdings and a short bio. The Motley Fool owns shares of France Telecom. Motley Fool newsletter services have recommended buying shares of France Telecom. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (3) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 24, 2012, at 5:19 PM, spokanimal wrote:

    Your comment that clearwire is "not an early mover on that (LTE) front" exposes your lack of knowledge...

    ... because clearwire is a COMPLETELY DIFFERENT mover, on that front.

    Anybody who contrasts clearwire's LTE strategy with that of a retail carrier (your supposed "early" movers) needs to be taken to the intellectual woodshed.

    Firstly, clearwire's LTE is TD-LTE, which optimizes "data" transmission rather than both voice and data as the retail carriers do with FD-LTE.

    Secondly, clearwire's strategy is to "augment" the other carrier's insufficient spectrum capacity by providing overflow capacity on a wholesale basis in densely populated geographies where they most need the help.

    In those locales, clearwire's network will augment theirs with inexpensive, 100-megabit-plus speeds and unlimited capacity... at just about the time they're going to need it most... as their bandwidth-hungry LTE transmissions max out the capacity of their networks.

    Put another way, just how far do you think Sprint's scrawny little 5x5, FD-LTE channel is going to GET them as downtown Manhattan ramps up on sprint's unlimited 4G plans down there...

    ... the overflow onto clearwire's massive capacity in such geographies is clearly going to be breathtaking!


  • Report this Comment On September 24, 2012, at 6:25 PM, jpohedra wrote:

    Why does the Fool keep repeating, in multiple articles, that Telefonica has a dividend yield over 10%? Doesn't your company information source tell you that they have suspended the dividend?

  • Report this Comment On September 25, 2012, at 10:44 AM, dmoney712 wrote:

    After I read the second paragraph, I couldn't read anymore. The folks writing articles here are indeed fools.

    "Subsidiary of Sprint HoldCo" - wrong, false, inaccurate.

    "sports a market capitalization of about $800 million" - wrong, false, inaccurate.

    Now, I'm no genius, but I was helping my 8-year-old son do number rounding and multiplication last night.

    Selena, given you're writing articles on a "financial" web site, I'm going to guess you are older than 8, so here's a pop quiz for you, good luck:

    Shares Outstanding: 1,459,211,000

    Price per share: $1.50

    1,459,211,000 times $1.50 = ______________

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