Sprint Nextel Corporation (S) Story About Time-Value of Money

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It takes about $2.5 billion in earnings each quarter to make that dividend, and AT&T usually makes that nut, except it’s time to buy the iPhones, which it had to do in the fourth quarter of last year. That $5 billion hit to expenses turned a normal profit into a fat loss. But it comes back in the form of two-year service contracts, so the investment is a big profit center.

The problem with AT&T is that it’s still stuck with unprofitable wired assets. Its efforts to boost capacity with uVerse have done nothing for the bottom-line, and Google is now eating into its long-distance digital revenues. The company’s low rates of investment mean it’s basically eating itself alive inside, so you won’t be able to stick this stock in the back of the closet and ignore it. At some point you’re going to have to sell, as you did with newspapers.

Another way to play the growth of mobile data is with Apple Inc. (NASDAQ:AAPL). Here you’re looking at a 2.68% yield, but some shot at capital appreciation. It can afford that dividend more than seven times over, and the company might still excite with something new. Given that it’s currently trading at a P/E of 11, that’s not bad business. Given that the company continues buying back stock, and has cut the share count by over 30 million this year alone, it’s hard to see the price going down much.

The only debt on Apple Inc. (NASDAQ:AAPL)’s balance sheet comes from that stock buyback, and the deal is profitable for Apple – that’s very low-cost debt which gives earnings per share (EPS) a regular boost. And even if it fails to improve much on last year’s results,you’re looking at $30 billion in cash flow every year going forward, with service revenues gradually picking up the slack from falling hardware revenues.

The Foolish Bottom Line

I’m biased. I’m long Apple Inc. (NASDAQ:AAPL). I see it as a $500 stock by the end of the year, and a solid value play. If you really, really need income, AT&T Inc. (NYSE:T) is your best bet.

Sprint, however, is a speculation. If Son does as well here as he did in Japan, if he turns the current market share map upside-down, you will be a winner here. But I’d wait a little bit, until the coming costs dawn on the timid and the stock goes down further, before jumping in. It’s a casino bet, with odds that are better than the slots but not as good as the table games. If your money can take its time it may well be rewarded. Good luck.

The article Sprint Story About Time-Value of Money originally appeared on Fool.com and is written by Dana Blankenhorn.

Dana Blankenhorn owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Dana is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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