Verizon and AT&T: The odd couple

Even with their decaying land-line businesses, the telecom rivals could see cash flow explode by becoming a benign duopoly.

By Jim Cramer Apr 1, 2011 9:30AM

thestreetthestreetVerizon (VZ) and AT&T (T) paid you to wait after all. These two old-line companies and vicious competitors have gained 41% and 26%, respectively, this year and are instrumental in the big run we've had in the Dow Jones Industrial Average ($INDU).

 

I have always liked these stocks as good dividend payers, but I have also felt that these companies could be growth stocks if they could stabilize their land-line businesses, because their wireless businesses are growing like mad.

 

What I didn't count on is that even with continued weakness in their land-line businesses, they would take the giant step toward profitability by becoming a benign duopoly.

 

I never thought there could be an end to the price cutting and the subsidizing of hardware, or the notion that they are just common carriers in a vicious price war.

Now, with this transformative deal, the market is seeing through the protestations that there will be a benign, happy duopoly and recognizing that a potentially cash-starved Sprint (S) can't be a price cutter anymore.

 

I'm sure there will be concessions demanded by the Justice Department that could even help Sprint. But it doesn't matter, because Sprint is not well capitalized. But Deutsche Telecom was. It always threatened to spend a fortune in the United States, and that's why taking it out is so brilliant.

 

But here's the amazing thing: These two stocks are still cheap. Sure, they will have some big capital costs coming up for 4G. (We put out a good note about Verizon's spend with Juniper this morning for Action Alerts PLUS.) However, we know that if you can stop the heavy subsidies for Apple (AAPL) or demand that a Korean or a Finnish company take less per phone or, best of all, raise the price for heavy video use, the cash flow will explode.

 

And so will the dividends.

 

That means you have two stocks with yields north of 5% that can have higher yields without the stocks coming down -- the way that Cisco (CSCO) is doing it.

It's still a remarkable opportunity after this amazing run -- pretty much par for the course in this terrific market.

 

At the time of publication, Cramer was long AAPL.

 

Jim Cramer is co-founder and chairman of TheStreet. He contributes daily market commentary for TheStreet's sites and serves as an adviser to the company's CEO.

 

Follow Cramer's trades for his Charitable Trust.

 

Related Articles

0Comments

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

125
125 rated 1
267
267 rated 2
455
455 rated 3
612
612 rated 4
682
682 rated 5
695
695 rated 6
632
632 rated 7
472
472 rated 8
279
279 rated 9
147
147 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
VZVERIZON COMMUNICATIONS9
TAT&T Inc9
CTLCENTURYLINK Inc8
EXCEXELON CORPORATION8
AAPLAPPLE Inc10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.