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.
Verizon (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.
Follow Cramer's trades for his Charitable Trust.
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3 stocks will be in the spotlight Thursday as investors try to make sense of the numbers from the sector.
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