Consumers hate them. Investors love them. They’re airlines, cellphone providers and other companies that annoy us with high fees, rotten service and policies so abusive that you want to call the Better Business Bureau – or a lawyer.
Take Spirit Airlines, the no-frills carrier based in Miramar, Fla., which recently hit the headlines for hiking carry-on baggage fees as high as $100 for those who don’t check in online. Spirit also charges for checked bags, drinks, snacks and booking a ticket over the phone through its reservation center. Leg room? Forget about it – unless you’re willing to pay extra, of course.
To say customers don’t like this kind of treatment is an understatement. Negative reviews and complaints registered at consumeraffairs.com total more than 600. But, says Imperial Capital analyst Bob McAdoo, Spirit is one of the best firms for investors.
Since going public in May 2011, the stock has soared 45 percent yet still sells for just eight times estimated profits, which are expected to jump 30 percent in 2013. That’s a bargain for a firm that analysts see delivering annual profit growth of nearly 20 percent during the next few years. Besides, McAdoo says, many passengers complain about Spirit because they don’t really understand how it works. “If you are expecting traditional airline service, Spirit is annoying,” he says. “It would be annoying if you went to McDonald’s expecting to sit down in a restaurant with a knife and fork. Spirit offers a different product.”
Telecom giants AT&T and Verizon Communications provide plenty of services – from landline phone service to Internet connections – that most consumers find seamless. But when it comes to their cellphone operations, consumers complain about everything from spotty reception to miserable customer service – not to mention exorbitant fees for getting out of a contract early. Yet rich dividends and near-captive markets have kept both stocks on recommended lists for years. Recently, several analysts, including UBS analyst John Hodulik, downgraded AT&T, partly because its share price has become relatively dear.
But Hodulik does recommend Verizon. He notes that Verizon Wireless – owned by Verizon Communications and Britain’s Vodafone – is making so much money that it recently said it would pay its parents an $8.5 billion dividend. The cash helps fund Verizon Communications’ $2.06-per-share annual payout. You won’t make a killing in Verizon, but with a lofty 4.7-percent yield, the stock need rise only a couple of bucks and change to give you a double-digit total return.
Kathy Kristof is a contributing editor to Kiplinger’s Personal Finance magazine. Send your questions and comments to moneypower@kiplinger.com. And for more on this and similar money topics, visit www.Kiplinger.com.
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