I’m considering the purchase of either 200 shares of MetroPCS Communications Inc. or 100 shares of Verizon Communications Inc. I’m 45 and this investment will be in my Roth independent retirement account, which you advised me to set up several years ago because the money won’t be taxed when it comes out. Anyhow, I need your help on making this selection. MetroPCS seems to be a more aggressive company but Verizon seems to be a more stable company. I want to choose the best issue. I’m also thinking about buying 200 shares of Sprint in our joint account as a gamble because, at $3.50 a share, I think it might be under-priced. What do you think of this idea? — D.F., Springfield, Ill.
Dear D.F.: MetroPCS Communications Inc. (PCS-$15) is one of the many small wireless communications carriers competing against Verizon, AT&T, Sprint, T. Mobile, Alltel and other big carriers. MetroPCS came public in April 2007 with the help of Bear Stearns, selling 50 million shares at $23. Revenues in 2007 were $2.2 billion, should grow to $2.8 billion in 2008 and possibly $3.4 billion in 2009. And, wonder of wonders, MetroPCS earned 57 cents in 2007, expects to earn 58 cents in 2008 and, if the economy doesn’t get any worse, Wall Street thinks MetroPCS could earn 70 cents in 2009.
This upstart has had a good start. But a couple of industry analysts seem to think that MetroPCS’s revenue growth will hit a wall. MetroPCS might move higher to the $17 to $19 level. But that would only be market momentum, not management driven.
Verizon Communications Inc. (VZ-$32) expects to post $100 billion in 2008 revenues. It was born in 2000 via the merger of Bell Atlantic and GTE and now has 141 million land lines, 60 million wireless customers and is the largest provider of print and online directory information. It seems that VZ has a hearty appetite for strategic acquisitions. It bought MCI in late 2006, recently purchased Rural Cellular Corp. and should complete the acquisition of Alltel Corp. before the year’s end making it the largest provider of wireless services in the United States.
And I wouldn’t hesitate a Sioux City second to recommend 100 VZ rather than 200 PCS. It’s a no brainer.
ADVERTISEMENT
VZ’s net profit margins are superior to those of MetroPCS by 10 percent. Return on shareholder’s equity is more than twice that of MetroPCS, cash flow per share is three times that of MetroPCS and annual revenue per user continues to increase while the ARPU for MetroPCS continues to move lower. If you decide to own VZ, please reinvest the dividends, which will add about 1.5 new shares to your position each quarter.
I think Sprint (S-$3.95) is a swell speculation. The ex-CEO, Forsee, an unimaginative and dour engineer who never smiled, was disliked by the rank and file. He wasn’t a people person and ran S into the ground. Now Daniel Hess, the new CEO and president, is doing a yeoman’s job of turning S around. He’s a bright, engaging fellow with an easy smile and most of the S folks think he’s a good guy. Forsee ran S so far below sea level that Hess has a hard row to hoe, but I think he can succeed. Go for it.
Meanwhile, I’m glad you have a Roth IRA.
Malcolm Berko is a syndicated columnist based in Florida. You can address your financial questions to him at P.O. Box 1416, Boca Raton, FL 33429, or send an e-mail to malber@comcast.net.
