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Is Sprint/Nextel a bargain right now at $3 and change?
- Thread starter Dan R
- Start date
ThinKabootit
New member
The marketplace can only support a limited number of telecom providers in the long-term; SprintNextel took in 33 billion dollars in the last twelve months, but somehow are managing to lose money.
I think there is a good reason they are selling at three and change, I suspect even that is more than they are "really" worth...
I think there is a good reason they are selling at three and change, I suspect even that is more than they are "really" worth...
This is a good example of how markets work and how markets can be efficient even in the face of dramatic price changes. If is very difficult to determine a fair price for any stock. Earnings are theoretically the most important measures. However, earnings are highly variable. TTM which stands for trailing twelve months earning are very low for most companies. Most companies are trading on expected future earnings. Sprint still has significant revenue and an economic recovery could put them back in the black within a relatively short time.
Another measure of a stock's value is book value. Sprint/Nextel's book value is over $6 per share. Book value is the accounting value of the assets. Accounting value and fair market value is not the same thing. Assets are bought and then depreciated and recorded on the books at their depreciated value. Market value for real estate usually goes up over time while the depreciated value goes down. Often there is enormous real estate value that is not included in book value.
However the reverse is also possible. Especially now with real estate in such hard times. It is possible that recently purchased real estate may be on the books for much more than it is worth. Inventory as similar issues. Inventory can be recorded according to a variety of methods which can over or under-state it true value.
There is also the possibility that unfunded pension liabilities may not be included accurately in book value. Still, it is a measure that gives a clue that there could be value here in excess of the current market value.
In the Intelligent Investor, Benjamin Graham explains how to dissect balance sheets in search of hidden value and then profit by buying wealth at pennies on the dollar. Of course sometimes you have to wait a very long time to profit by your purchase.
Moreover, in any one stock, it is little better than a coin toss as to whether you do better or worse than another stock. Building a portfolio of good bets increases your odds of success.
Broadly speaking, investing in companies like Sprint/Nextel is known as value investing. You buy companies whose price is low relative to some intrinsic measure. Sometime value investors use earnings. By that measure Sprint/Nextel would not be a value stock since it is losing money as others who have answered this question have pointed out.
However, Sprint/Nextel does have assets and revenue and could be a value stock when measured against those metrics.
Investing in value stocks has produced higher returns than the market as a whole over long periods of time. You can invest in a diversified portfolio of value stocks through stock index funds like Vanguard Value or through ETFs like iShares Russell 1000 Value. Doing this gives you broad exposure to many stocks like Sprint/Nextel.
You can also invest in actively managed value mutual funds like the Vanguard Windsor fund or the Dodge and Cox stock fund. Rather than buy all value stocks in a particular value index, they do the kind of analysis Benjamin Graham explains in the Intelligent Investor to try to select the best ones.
Finally, you can try to select individual stocks as you seem to want to do. If you want to go that route, You should read the Intelligent Investor by Benjamin Graham as well as One Up On Wall Street by Peter Lynch. Warren Buffett was a student of Benjamin Graham's and built his fortune using these principles.
Most professional investors fail to beat unmanaged index funds. If you expect to succeed where professionals usually fail, you have to develop some strategy by which you feel you can gain an advantage.
My portfolio strategy is to develop a portfolio of low-cost index funds diversified among US and foreign, large and small, value and growth. I over-weight small and value since I believe small and value offer higher expected returns over time. But I include large and growth since there are no sure things.
I am a CFA and a CFP(r). I have a degree in economics. I bought my first stock when I was 14. I have been a professional investor since 1989 and have been in the financial services industry since 1983. All of that experience has led me to the conclusion that index investing offers the highest probability of success.
Another measure of a stock's value is book value. Sprint/Nextel's book value is over $6 per share. Book value is the accounting value of the assets. Accounting value and fair market value is not the same thing. Assets are bought and then depreciated and recorded on the books at their depreciated value. Market value for real estate usually goes up over time while the depreciated value goes down. Often there is enormous real estate value that is not included in book value.
However the reverse is also possible. Especially now with real estate in such hard times. It is possible that recently purchased real estate may be on the books for much more than it is worth. Inventory as similar issues. Inventory can be recorded according to a variety of methods which can over or under-state it true value.
There is also the possibility that unfunded pension liabilities may not be included accurately in book value. Still, it is a measure that gives a clue that there could be value here in excess of the current market value.
In the Intelligent Investor, Benjamin Graham explains how to dissect balance sheets in search of hidden value and then profit by buying wealth at pennies on the dollar. Of course sometimes you have to wait a very long time to profit by your purchase.
Moreover, in any one stock, it is little better than a coin toss as to whether you do better or worse than another stock. Building a portfolio of good bets increases your odds of success.
Broadly speaking, investing in companies like Sprint/Nextel is known as value investing. You buy companies whose price is low relative to some intrinsic measure. Sometime value investors use earnings. By that measure Sprint/Nextel would not be a value stock since it is losing money as others who have answered this question have pointed out.
However, Sprint/Nextel does have assets and revenue and could be a value stock when measured against those metrics.
Investing in value stocks has produced higher returns than the market as a whole over long periods of time. You can invest in a diversified portfolio of value stocks through stock index funds like Vanguard Value or through ETFs like iShares Russell 1000 Value. Doing this gives you broad exposure to many stocks like Sprint/Nextel.
You can also invest in actively managed value mutual funds like the Vanguard Windsor fund or the Dodge and Cox stock fund. Rather than buy all value stocks in a particular value index, they do the kind of analysis Benjamin Graham explains in the Intelligent Investor to try to select the best ones.
Finally, you can try to select individual stocks as you seem to want to do. If you want to go that route, You should read the Intelligent Investor by Benjamin Graham as well as One Up On Wall Street by Peter Lynch. Warren Buffett was a student of Benjamin Graham's and built his fortune using these principles.
Most professional investors fail to beat unmanaged index funds. If you expect to succeed where professionals usually fail, you have to develop some strategy by which you feel you can gain an advantage.
My portfolio strategy is to develop a portfolio of low-cost index funds diversified among US and foreign, large and small, value and growth. I over-weight small and value since I believe small and value offer higher expected returns over time. But I include large and growth since there are no sure things.
I am a CFA and a CFP(r). I have a degree in economics. I bought my first stock when I was 14. I have been a professional investor since 1989 and have been in the financial services industry since 1983. All of that experience has led me to the conclusion that index investing offers the highest probability of success.
ThinKabootit
New member
The marketplace can only support a limited number of telecom providers in the long-term; SprintNextel took in 33 billion dollars in the last twelve months, but somehow are managing to lose money.
I think there is a good reason they are selling at three and change, I suspect even that is more than they are "really" worth...
I think there is a good reason they are selling at three and change, I suspect even that is more than they are "really" worth...