I promised to answer reader questions at least once a month. So, here we go: Hey Modelman, you listed NII Holdings (NIHD) as one of your
Nasdaq All-Stars on April 10. It was a typical situation where a firm re-emerges from bankruptcy and nobody wants to own it. At the beginning of the year, it was just insanely cheap relative to comparable companies, but at $25 in April, there was no way I'd buy it. Now it's at $36! I wouldn't expect it to do too much more for the rest of the year, would you? Modelman: NII Holdings, the quasi-independent Latin American arm of Nextel Communications ( NXTL), is a great example of two key vectors in the market today. First, from a business standpoint, bankruptcy can help a troubled company eliminate its debts and lower its costs -- factors that give it a tremendous edge over competitors. Many of these are tigers when they return to public trading. Second, from a market standpoint, traders today love "story stocks" with big upside earnings surprises and upgrades from well-regarded independent stock analysts. Many jump the first day after news and keep rising. NII, which provides Nextel mobile phone service in Mexico, Brazil, Argentina and Peru, was already buzzing along on April 9, with a 109% year-to-date advance, when my screen for low-priced momentum stocks identified it as a stock with further potential. Three weeks later, the company announced blowout earnings -- exceeding analysts' expectations by a whopping 50 cents a share and recording $12 million in free cash flow in a quarter in which it was expected to report more than $20 million in cash burn. The stock moved up on that news, and then it climbed another $4.60 on the day Fulcrum Global Partners, one of the new-age stock research firms not affiliated with investment bankers, slapped a buy rating on the stock and a $44 12-month price target. The target price is based on the stock trading at 4.8 times 2004 earnings before interest, taxes, depreciation and amortization estimates, or 14.9 times its 2004 earnings per share estimates. That represents a 20% discount to comparable international wireless companies and a 25% discount to domestic wireless companies. Fulcrum said that risks to the target price -- besides obvious obstacles like currency and global economic volatility -- include the potential for a dilutive secondary stock offering. Considering that insiders dumped 163,300 shares of the stock worth $6 million from May 19 to May 23, at prices from $31.50 to $36, it's probably time to look for a pullback in the shares. But with money flow still strong and momentum continuing, in a speculative environment, there appears to be room for further advancement in this high-wire act.