Europe's Value: Two High-Yield Telecom Stocks
J.B. is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Two questions should always be asked before purchasing a stock. One, am I willing to hold this stock for as long as ten years? Two, will the business behind the stock be viable in fifteen years? If the answer is no to either question, a long-term investor should simply walk away and move on to greener pastures. An even more important question should be, does the investor have the advantage? In other words, has the stock been irrationally oversold? Has the business suffered a setback that it can overcome? If the answer to these questions is yes, then the stock is worth a look.
Given these questions, two high-yield telecom stocks are, perhaps, worth buying--NTELOS Holdings (NASDAQ: NTLS) and France Telecom (NYSE: FTE). By the end of this post, the more favorable company will be written on the wall.
Psychologically, there is much to love about nTelos. It pays a quarterly dividend of forty-two cents per share. It is a regional provider with room to grow. And, my personal favorite, it has a great brand and a spotless public image. It has branded itself quite effectively in the Southeast. It recently put its name on the Charlottesville Pavilion (now the NTELOS Wireless Pavilion) in Virginia, which was the venue last year for a Barack Obama rally featuring Bruce Springsteen.
However, once these attractive features have been accounted for, once the stock is viewed rationally, there are lingering issues. First, Lumos Networks was recently spun off from NTELOS, and it has performed poorly over the past several months. Spinning off Lumos may or may not have been a bad decision, but any time a company releases assets from its control, several questions are immediately asked by any investor--how will this add value to the parent company, was this move part of a larger strategy, how will this affect the company five years down the road. Secondly, and more importantly, NTELOS is looking at losing up to forty percent of its revenue by 2015, after a lucrative contract with Sprint expires. Can growth in data consumption among average consumers over the next few years compensate for that loss of revenue? Until answers are provided to these questions, NTELOS is a short-term trade, not a long-term investment.
Psychologically, there is much to fear about France Telecom. The European Union almost became a disunion. There is stiff competition from bargain brand providers and behemoths like Vodafone. More than a quarter of the company is owned by the French government, which, some would say, means “as goes the government, so goes the company.” The dividend has been cut to eighty cents per share for 2013. Are these fears legitimate? Are they rational?
For starters, the dividend was cut in order to preserve France Telecom’s credit rating, which was a sound decision. Second, France’s economy should not contract in 2013, but grow. The IMF anticipates France’s GDP to grow at a sluggish .4 percent pace. Third, the company is well-positioned for global growth. It is truly a global player, having more than 220 million customers worldwide. Finally, the EU has handled its debt crisis better than most predicted it would. Most European stocks have been oversold. France Telecom has a very low P/E ratio compared to similar companies. In fifteen years, France Telecom will still be a global telecommunications player with, at least, a strong presence in Africa and Europe. The beauty of buying France Telecom lies in the opportunity to benefit from the dividend and the rising stock price. So, you tell me, which stock is more attractive?
jbinvests owns France Telecom (ADR) but holds no position in any of the other stocks mentioned. The Motley Fool recommends France Telecom (ADR) and Vodafone. The Motley Fool owns shares of France Telecom (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!