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Berko: Don’t follow broker on U.S. Cellular

By Malcom Berko
Published: October 6, 2018, 6:02am

Dear Mr. Berko: My partner and I seek long-term growth in conservative blue-chip stocks. We are both gainfully employed in sales, and together we earn nearly $175,000 annually. After doing poorly in the stock market during the past two years, we decided to change stockbrokers and find a professional whom we could work with to build a solid portfolio with stocks that have good growth potential. Our new broker has recommended that we invest $100,000 in 10 different sectors — telecommunications, utilities, tech, retail, pharmaceuticals, finance, biotechnology, oil and gas, defense, and foreign stocks. He wants us to invest $10,000 in each sector, and the first stock he has recommended is U.S. Cellular. My partner doesn’t care for this stock, and he wants to settle this disagreement before we proceed with the other sectors. Please give us your opinion of this stock.

— JF, Detroit

Dear JF: U.S. Cellular was founded in 1983, and its cellular business is promoted by 256 retail stores and kiosks around the country. In my opinion, this cellular company is a great big huge blah. And I can’t imagine one single reason in the entire universe this broker would recommend an investment of $10,000 in U.S. Cellular (USM-$44). USM has to be among the most mundane, tiresome, dull, boring, humdrum public companies traded on the New York Stock Exchange. And because a company usually imitates the personalities in its top management, USM must have pitifully tiresome, terribly mundane, appallingly dull, incredibly boring and dreadfully humdrum management. USM’s chief accounting officer doesn’t own a single share of USM. USM’s senior vice president in charge of sales doesn’t own USM stock, either. Neither do the executive vice president of operations, the chief technology officer, the EVP of finance and numerous other officers and directors of this 6,000-employee company. The reason so many officers and directors don’t own USM stock is simple: None of them feels the stock is worth a beggar’s dime.

During the past 10 years, the market price of USM (even with buybacks beginning in 2009) shares has been on a gentle decline, with a steady rate of lower high prices and a steady rate of lower low prices.

Revenues of this cellular company, which serves 5.1 million U.S. customers, have been up and down on its income statements like a $1 Duncan yo-yo since 2008. That year, USM’s revenues were $4.2 billion, but even as revenues have grown for nearly all cellular companies for the past decade, USM will be fortunate to record revenues of $3.9 billion this year. Even T-Mobile and Vodafone continue to grow revenues. By some kind of corporate black magic, USM’s management was able to make about $300 million (7.5 percent) of revenues disappear into the ether.

And while other telecoms managed to produce respectable net profit margins of 4 to 5 percent, USM’s net profit margins have been all over the map — from less than 1 percent in 2008 to 5.1 percent to 3.2 percent to 2.5 percent to 6 percent (wow) to 1.2 percent to 0.3 percent to 1.9 percent. And over the past 10 years, USM’s earnings have been just a screw-up and a screw-down. Last year, USM’s management embarrassingly posted earnings of 14 cents a share, and this year, earnings may, on a wing and a prayer, come to 80 cents a share, with net profit margins fortuitously expected to come in at 1.7 percent. And dividends? Well, I’m told that USM has never paid a dividend.

Frankly, there’s no reason for this to be a public corporation. In the past 10 years, this company has been sitting at its NYSE post like a blob, trading about 100,000 times a day. Its inutile, dozy management should petition the NYSE to delist USM and make room for another company that could better represent the Big Board.

Don’t dare buy USM. If this is one of your new broker’s recommendations, you’d better send me his other recommendations, too.


Malcolm Berko addresses questions about stocks. Reach him at P.O. Box 8303, Largo, FL 33775 or mjberko@yahoo.com.

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