MetroPCS Is Testing Investors' Patience

Posted Mar 9th 2010 6:00PM by Joseph Lazzaro
Filed under: Stocks to Buy

Prepaid wireless play MetroPCS Communications (PCS), first discussed here on December 21, 2009 at a price of $7.55, 'the little engine that might,' has gone in the wrong direction -- down -- in the past three months.

Note: I consider MetroPCS to be a high-risk stock not suitable for low/moderate-risk investors.

Even worse, technically, the chart has formed a bear hug -- a bearish trend in which the stock rallies to the key, 50-day moving average, only to decline again. Typically, the stance would be to close the position. However, a recent pop above the 50-day MA provides some hope, so the stance is to maintain the play.

Fundamentally, the major question for PCS concerns whether it can grow its subscriber base without price cuts given strong competition and a U.S. economy that has 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 employment situation, and this will more than offset any additional price cuts. The First Call FY2010/FY2011 EPS estimates for PCS are 43 cents to 57 cents.

2010 Outlook: I view MetroPCS as a long-term play, but if investors are looking to sell PCS within the year, it's probably best to take your profits after it rises to $8-9, if it fails to clear $10.

Stock Analysis: I consider MetroPCS Communications to be a high-risk stock. If an investor has already purchased the company's shares, I'd hold them. If not, and I wanted to buy the stock, I'd consider buying a 25% position in PCS now. Under any circumstance, I wouldn't buy more than 50% of my PCS position before April 2010 and I'd put a sell/stop loss at: $3.

- -

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

Tags: cellphone, MetroPCS, pcs, prepaid