The 1 Reason Sprint is Outperforming Today

The Dow Jones Industrial Average was mixed in morning trading Tuesday. Sprint rocketed higher in the session while Verizion and AT&T were flat.

Jun 10, 2014 at 1:00PM
Take The Long View

The Dow Jones Industrial Average (DJINDICES:^DJI) was slightly lower at 1 p.m. EDT Tuesday, following a morning of mostly flat trading. The Dow opened slightly lower but moved back and forth between gains and losses throughout the session.

Sprint (NYSE:S) outperformed the broad markets by a wide margin Tuesday morning, moving nearly 2% higher before falling back to a roughly 1% gain. Sprint's major competitors, Verizon (NYSE:VZ) and AT&T (NYSE:T), were both slightly under breakeven in the session.

Why Sprint popped but Verizon and AT&T didn't
An analyst at the investment bank Macquarie Group upgraded Sprint's stock on Tuesday morning. This announcement was the single catalyst that drove the company's stock higher today.

Macquarie said it sees a 70% likelihood that a Sprint merger with rival T-Mobile would survive regulatory scrutiny and gain approval. 

Verizon and AT&T dominate the U.S. wireless business, and Sprint and T-Mobile have struggled to gain market share against the two giants. The merger of Sprint and T-Mobile would create a company with enough size and scale to finally challenge the top players.

The investment perspective

Att Verizon Sprint Fool Flickr

In theory, a third competitor at scale would increase competition, choice, and service quality for consumers. For investors, though, the outcome is not as clear.

AT&T and Verizon are the two highest-yielding dividend stocks on the Dow, made possible by the companies' slow and consistent growth, predictable profits, and excellent cash flows. It is truly impressive that these companies can maintain dividends considering the massive amounts of capital it takes to build and maintain their respective nationwide infrastructure networks.

The prospect of a third major domestic competitor is problematic, at least on the surface, for both of these giants. The industry has been in a pricing war for several months now, and T-Mobile by many accounts is winning. It stands to reason that a merged T-Mobile-Sprint would continue that trend, and steadily gain market share from the big boys while also eroding margins.

Don't forget the international competitors. China Mobile is the largest company in the industry with over 750 million current subscribers -- that's three times as many as AT&T and Verizon combined. You can read further about the international threat here.

Only time will tell if Verizon and AT&T can continue to thrive in a new world of three major U.S. players. Warren Buffett is buying Verizon, if that is any indication.

What about Sprint?
The case for Sprint is more speculative. The business hasn't turned a profit in years, and T-Mobile by most accounts is the best of the "not Verizon or AT&T" telecoms. 

In its report this morning, Macquarie summed up the proposition succinctly in terms of risk and reward:

With 53% upside to $13.20 by end-'15 if a deal is approved vs. 17% downside to $7.25 if rejected, S shares are now the best risk/reward in US telecom.

Sprint today is trading at just over $8.80.

Leaked: Apple's next smart device (warning, it may shock you)
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Jay Jenkins has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

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That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.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.

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