The stock market staged an impressive snapback rally over the past two days, but I believe the next few months will be much bumpier than the first three months of the year, and we will be lucky to hold the substantial gains of the first quarter. One area that did not participate fully in the rally over the past six months is the telecom sector. I specifically like foreign telecoms paying high dividends that have been affected by the crisis in Europe and its periphery. Here are three with low valuations and high yields I like here.
Mobile TeleSystems (MBT): This is one of the leading telecom providers in Russian and the countries of the Russian Federation. The stock has rebounded nicely since its lows in October (along with the overall Russian market) but it is still below its highs earlier in 2011. Russian stocks overall should do well now that the political situation has stabilized somewhat and as long as oil prices remain high.
It yields approximately 6% and is priced at just over 9x forward earnings. The stock is significantly under consensus price targets given it is also a 6% yielder. The mean price target on MBT by the 22 analysts that cover the stock is around $23. The company is also poised to ramp up earnings. It made $1.26 a share in FY2011, and is expected to ramp that up to $1.75 in FY2012 and $2.00 a share in FY2013.
The stock is cheap at 5x cash flow and has a five-year projected PEG of under 1 (0.93). Analysts have also bumped up earnings estimates for FY2012 and FY2013 in the past month.
Telefonica (TEF): The company provides fixed and mobile telephony services primarily in Spain, Latin America and rest of Europe. The stock has been hammered by the crisis in Europe and is sitting at multi-year lows. Although the stock has gone down with the rest of Spanish equities, it gets roughly 70% of its revenues from fast growing Latin America.
The company produces cash flow of around $22 billion a year and has been shedding non-core assets to pay down debt. The stock yields 11% and is projected to have earnings and revenue growth in FY2012. It is cheap at just over 7x forward earnings. Standard & Poor's has a "Buy" rating and a $20 price target.
Vodafone (VOD): This company is one of largest telecom providers in the world. It provides voice services to 370 million people and fixed broadband to over 6 million in scores of countries.
The stock yields over 7% yield, has a low beta (0.79) and an A-rated balance sheet. It sells for just 4% over book value, and its 45% ownership in Verizon Wireless is undervalued by investors in my opinion.
The stock is reasonably valued given its yield at just 10x forward earnings and under 8x operating cash flow. The company is unwinding non-core assets, is starting to receive dividends from its stake in Verizon Wireless and should benefit from the continuing migration to smartphones. It is one of the safest high-yielding investments in my own portfolio.