Two Low-Priced Stocks in Contrast
Posted at 11:03 a.m. EDT on Thursday, July 26
Sprint Nextel (S) and Zynga (ZNGA - Get Report). Two stocks on two different paths, two stocks that passed each other today, one going up, and one going down. And all I can say is that there couldn't be a greater contrast.Sprint was a $2 stock that everyone gave up on, a company that looked like it was going into bankruptcy because of its massive losses and incredible need for capital. Now, on the strength of excellent execution and sheer ingenuity by one of my absolute favorite CEOs, Dan Hesse, the future for Sprint looks incredibly bright, and that ugly duckling $2 stock is now blossoming into a $3.82 stock that I think can go much, much higher, in part because it is still hated by the analysts, many of whom will now be forced to upgrade it because of the incredible ongoing operating improvement. Zynga, on the other hand, is part of an ignominious group of stocks, the second round of hyped Internet stocks, this time with the sexy social rubric attached to them, that have blown up in people's faces in a horrendous way. This $3 stock used to be at $15 and was much loved by Wall Street until today, when it reported a hideous quarter, losing 40% of its value as a slew of brokerage houses took it off their buy lists. What the heck was it doing on their buy lists anyway? And how in heck could this company, which was guiding for earnings gains of 23 cents to 29 cents, now say it could earn only 4 cents to 9 cents? We've got as little value added from the clueless Zynga analysts as we have had from the obtuse Sprint followers. Sprint is in it for the long haul, in part because it is making much more money per subscriber now that it did just a few months ago, in part because it has embraced the Apple (AAPL) iPhone, and in part because it has the biggest bargain for its customers when it comes to data use. The rally in the common stock will help Hesse to continue to raise the capital he needs to transition his Nextel customers to plain old Sprint, because bond buyers, which had already embraced the turn, will lap up new high-yielding bonds that Hesse can issue.