The Most Undervalued Wireless Stock Out There Right Now

One of the great maxims of traders and Wall Street pros is to follow the "smart money."

I'm not much for the thesis that institutional shoppers tend to make smarter investing decisions, but many of you who've read my ruminations on insider buying say you'd also like to know how the Big Money is betting. Your wish is my command.

Next up: Clearwire (Nasdaq: CLWR). Are institutions bullish or bearish when it comes to this wireless broadband provider?

Foolish facts

Data current as of March 15.

Fools have good reason to be skeptical of Clearwire. The company faces stiff competition in wireless broadband delivery, has too much debt, is losing executives, and is mired in a dispute over distribution fees with its majority owner and primary network partner, Sprint Nextel (NYSE: S). Business could hardly be worse.

Or could it? Departing chief commerce officer Mike Sievert told the gathered crowd at Xconomy's Mobile Madness event in Cambridge, Mass., that the company was acting like a start-up trying to capitalize on a massive opportunity. "We lack for nothing except cash," The Wall Street Journal reported Sievert as saying.

That's an optimistic take for a guy headed out the door. But he's right. Wireless broadband is a national priority for the Obama administration, and no single company owns more spectrum for delivering high-speed wireless than Clearwire.

Investors should love that. For months now, outgoing CEO Bill Morrow has shopped as much as one-third of Clearwire's regional capacity in an effort to raise $2.5 billion to $5 billion in cash. Several carriers have expressed interest, which means that Clearwire's key asset would fetch somewhere between $7.5 billion and $15 billion in an acquisition. The stock nets just $3.7 billion in enterprise value as of this writing.

"This stock is hitting new 52 weeks lows. Most of the issues surrounding this company revolve around its ability to finance continued expansion (liquidity issues). I, however, do not see this company going broke, [Clearwire] has too many assets for it to be going away anytime soon," wrote Foolish investor Achoutw in December.

Clearwire also tells an interesting growth story. Revenue more than doubled in the fourth quarter as the company's subscription rolls blossomed under the Sprint deal to 4.4 million. Clearwire expects to double that this year to 8.8 million. By 2015, I expect that total to grow to 30 million, with Sprint and other wholesalers supplying 90% of that base. Revenue could multiply eight times, to more than $4.6 billion, during that period.

Institutional ownership history

Source: Capital IQ, a division of Standard & Poor's. *Indicates the number of shares owned.

I'm not the only one who sees outrageous growth at work here. The top 25 institutional investors dramatically increased their holdings from 2009 to 2010, with buying continuing through each of the last four quarters. In many cases, the buying came from smaller institutions opening new positions.

Among mutual funds, the highly regarded Goldman Sachs Mid Cap Value (GSMCX) fund upped its stake in Clearwire by more than 20% when it purchased 918,645 shares in the December quarter, Morningstar reports. Steven Wymer's high-performing Fidelity Growth Company (FDGRX) remains the top shareholder among mutual funds.

Competitor and peer checkup

Source: Capital IQ. Data current as of March 15.

Clearwire has plenty of problems, but its ownership profile isn't one of them. Not only is there plenty of room for Big Money buyers to get in on the stock, but insiders also own a large share of the business. For example, chairman and interim CEO John Stanton has direct control of more than 1 million shares of the company as of this writing. He'll profit right alongside outside owners if his team is able to execute.

Getting there won't be easy. But with the stock trading so far below the market value of its principal asset, investors making a bet here stand to profit handsomely if this growth story delivers a happy ending. I think that's the most likely outcome. As such, I've rated the stock to outperform in my CAPS portfolio.

Do you agree? Disagree? Let me know you would rate Clearwire using the comments box below. You can also recommend other stocks for me to evaluate by sending me an email, or replying to me on Twitter.

And in the meantime, keep tabs on Clearwire by rating the stock in Motley Fool CAPS or adding it to the My Watchlist tool, our free, personalized stock tracking service.

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