Shop for Bargain Stocks Along with Carlos Slim
Tony is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The Mexican telecoms tycoon Carlos Slim is, according to Forbes, the world's richest man. He became rich two ways: First, by building the dominant telecommunications company in Mexico over the past few decades. Today, his telecom holdings are held in the form of his stake in America Movil SAB de CV ADR (NYSE: AMX).
His investments, through America Movil, have spread throughout Latin America. In effect, Mr. Slim has built a telecommunications empire across the continent, with his America Movil now being the largest wireless provider in Latin America and the fourth biggest in the world in terms of subscribers. The company's Claro subsidiary is a major player in the fast-growing Brazilian telecom market, along with other markets in South America.
Carlos Slim has also built his wealth in a second way...the same way as another billionaire, Warren Buffett. That is through value investing, finding and picking up companies when they are dirt cheap because of fear in the markets for one reason or another. Mr. Buffett, of course, does his dealing through his company, Berkshire Hathaway (NYSE: BRK-B). Buffett, using the Benjamin Graham brand of value investing, likes to look for companies selling below their book value. By the way, Berkshire Hathaway itself is an interesting value selection trading at just above 1.1 times book value, perhaps due to the number of financial firms in the portfolio.
Getting back to Mr. Slim...he is at it again! He's trying to build another telecoms empire, this time in Europe, by snapping up shares in two beaten-down telecommunications firms. The European debt crisis has certainly opened up many European stocks to value-type investors. The two European telecom giants in Mr. Slim's sights right now are the Netherland's Koninklijke KPN NV ADR (NASDAQOTH: KKPNY.PK) along with Telekom Austria AG ADR (NASDAQOTH: TKAGY.PK).
America Movil has already raised its stake in KPN to 7.3% through a tender offer for its shares, which is valid to June 27. The offer is for a total 27.7% stake in the company at a price of 8 euros a share, which is above its recent price of 7.85 euros. KPN's stock traded as low as 6.35 euros before Mr. Slim's offer and is the weakest performer in an overall weak group. Its all-time high was around 13 euros.
America Movil also turned out to be the surprise buyer of a 21% stake in Telekom Austria. The company is buying the shares from Austrian financier Ronny Pecik, purchasing 5% immediately and the remainder of the holding later this year. This will bring Mr. Slim's holding in the company to 26%. The only difference between this and the KPN purchase is that both the company and the Austrian government are welcoming Mr. Slim with open arms.
The Austrian government's approval is crucial, since it owns a 28% share in the company through a holding company, OeIAG. The chairman of OeIAG, Markus Beyer, stated the following about America Movil: "This investor is a financially and strategically excellent company with long-term strategic interests." That's the main selling point here--that America Movil will be a patient, well-capitalized, long-term holder of Telekom Austria shares.
The Telekom Austria deal is a smart, strategic move for America Movil. It is surely a first step into the central and eastern European markets, which are growing faster than core Europe. Telekom Austria will serve as a platform for America Movil to learn about how these markets work differently from the Latin American markets it is so familiar with and how to prosper in these markets.
Both companies have reached bargain price levels thanks to increased competition in their domestic markets, leading to weak growth and margin pressures; their competitors include cable companies and web-based applications such as Skype. These trends will not change over the short-term, keeping pressure on both companies. However, in the longer term, expansion into markets in Eastern Europe, Africa, and the Middle East holds the promise for continued growth, which Mr. Slim seems to have spotted. There is also the strong possibility of future M&A activity, no doubt of interest to the world’s richest man.
These types of purchases (buying in the midst of a debt crisis) are familiar ground for Mr. Slim. He has made similar buys in Latin America numerous times. The lesson here for investors? The European debt crisis has led to the creation of many bargains...this is the time to go shopping. If you are uncomfortable with that though, just stick to the best value shoppers in the world – Carlos Slim and Warren Buffett – and let them do the shopping for you.
tdalmoe has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. 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.If you have questions about this post or the Fool’s blog network, click here for information.
