WORLDCOM: WORTH THE WAIT?
Currently, WCOM is one of the cheapest major telecom providers in
the world, based on sales or cash flow. Looking out two years, I
figure WCOM will generate sales of about $13 per share. In the
old days (the early and mid-1990s, before the tech/telecom bubble
inflated), respectable phone companies -- not the whiz-bang
cellular start-ups --typically sold for 1.5 to 2 times sales.
Thus, we arrive at a projected share price of $20 to $26 for WCOM
in 2004. That's a nifty gain of 200%-400% from today's quote.
But can WCOM deliver? The main risk is that a double-dip
recession might unravel the company's finances. At the moment,
though, WCOM appears to have adequate reserves -- over $1 billion
in cash and no bank debt or commercial paper. The recent layoff
announcement shows WCOM is serious about keeping costs in line
with revenues.
Bottom line: WorldCom is clearly a speculation. (We're carrying
it in our aggressive Ten-Baggers List.) If you already own the
stock, I encourage you to hold on. However, I won't advise new
purchases until we see proof that WCOM's earnings have taken a
turn for the better.
Currently, WCOM is one of the cheapest major telecom providers in
the world, based on sales or cash flow. Looking out two years, I
figure WCOM will generate sales of about $13 per share. In the
old days (the early and mid-1990s, before the tech/telecom bubble
inflated), respectable phone companies -- not the whiz-bang
cellular start-ups --typically sold for 1.5 to 2 times sales.
Thus, we arrive at a projected share price of $20 to $26 for WCOM
in 2004. That's a nifty gain of 200%-400% from today's quote.
But can WCOM deliver? The main risk is that a double-dip
recession might unravel the company's finances. At the moment,
though, WCOM appears to have adequate reserves -- over $1 billion
in cash and no bank debt or commercial paper. The recent layoff
announcement shows WCOM is serious about keeping costs in line
with revenues.
Bottom line: WorldCom is clearly a speculation. (We're carrying
it in our aggressive Ten-Baggers List.) If you already own the
stock, I encourage you to hold on. However, I won't advise new
purchases until we see proof that WCOM's earnings have taken a
turn for the better.