MetroPCS: A Get-Ahead-of-the-Pack Play

Earlier in 2009, institutional investors hammered MetroPCS on competitive pressures in the prepaid wireless segment -- the market segment in which cell phone users pay for minutes ahead of time.

The big question for PCS concerns whether it can grow its subscriber base without further price cuts, given the aforementioned competition and a U.S. economy that's to-date not had a net-positive job growth month in more than a year. The calculation here is that while margins may continue to be pressured in the quarters ahead, we're at a bottom in terms of the job growth situation, and this will more than offset any additional price cuts. The First Call FY2009/FY2010 EPS estimates for PCS are 47 cents to 51 cents.

Technically, MetroPCS's stock chart, up until December, had exhibited the tell-tale signs of a bear-hug -- a bearish pattern, while plummeting from about $19 to about $5. But recently the stock has reversed, and burst above the key, 50-day moving average, generating the Buy call. Hence, the argument here is that a stock bottom is in place, and to some degree, MetroPCS is a "get ahead of the pack play."

However, keep in mind that MetroPCS is a high-risk stock not suitable for moderate/low risk investors.

Stock Analysis: MetroPCS is a high-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 50% position in PCS now; then buy another 25% in one month, if U.S. economic conditions don't worsen substantially. Under any circumstance, don't buy more than 75% of your PCS position before February 2010. Sell/Stop Loss if you were to buy shares in this company: $3.

Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.