There's something to be said for a company that dominates its market. Think of the power of Wal-Mart (WMT) vs. Kmart, or Coca-Cola vs. Royal Crown Cola, or a Hollywood studio production vs. an aspiring auteur with a camcorder shooting a movie in his mom's basement.
Two major telecom names that deserve your attention are Telecom Italia (TI) and Britain's BT Group (BT), (formerly known as British Telecom). Not only do they dominate their markets, but they are international companies, which makes them excellent choices for diversifying your portfolio.
The strategy I created, based on the writings of James P. O'Shaughnessy, values these two names favorably. Since I've been following O'Shaughnessy's tactic (from July 15, 2003), it has produced an annualized rate of return of 9.4%, more than triple the S&P 500's 2.5% return for the same period.
O'Shaughnessy's Cornerstone Value Strategy is used to measure very large companies. To be a winner, this strategy requires the following:
- A company's market cap must be in excess of $1 billion.
- Cash flow per share must be greater than the mean of the market's current cash flow per share (which is $1.39).
- The total number of shares outstanding must exceed the market's average (which is 615 million shares).
- Trailing 12-month sales must be 1.5x greater than the mean of the market's trailing, 12-month sales (which is $19.7 billion).
When a company passes all of these hurdles, it has place in the top 50, based on its dividend yield, to earn the strategy's highest recommendation.
Both Telecom Italia and BT Group have sizable domestic and foreign operations, with Telecom Italia in Argentina and Brazil, and BT in more than 170 countries.
Telecom Italia's market cap is $21.3 billion, its cash flow per share is $4.28, its number of shares outstanding is 1.9 billion and trailing 12-months sales are $39.5 billion. These numbers easily exceed the O'Shaughnessy strategy's minimums. Its dividend yield of 7.64% is what places it in the top 50.
BT's market cap is $23.8 billion, while its cash flow per share is a gushing $9.45, the number of shares outstanding is 823 million and trailing 12-month sales total $30.8 billion. BT makes it into the winner's circle with a 4.06% dividend yield.
If you're looking to diversify your portfolio with an international company, a telecom or a high-dividend payer, either of these stocks will fit your bill.