A number of our Inner Circle members have asked our opinion on global stock market investing in recent months, particularly companies that operate in fast-growing emerging markets.
Some of these companies may not be well-known to North American investors. However, if it’s possible to invest in these stocks through North American markets, our team of independent investment experts is happy to look into them. We then share our research with all of our Inner Circle members, along with the original member’s question (of course, we eliminate any personal information).
We reserve our specific buy/sell/hold advice for Inner Circle members, of course. But to give you an idea of the depth of our research, here are two recent examples of member questions about global stock market investing. One is about a Spanish telecommunications company that’s part of a joint venture to expand China’s wireless networks. The other is about a growing Philippine fast-food chain.
Q: Pat: I would appreciate your analysis of Telefonica SA of Spain. Best regards.
A: Telefonica SA (ADR), $64.87, symbol TEF on New York (ADRs outstanding: 1.5 billion; Market cap: $97.7 billion), provides a range of telecommunications services, including traditional telephone, wireless, Internet access and entertainment. Telefonica mainly operates in Spain, Portugal and a number of Latin American countries.
The company has 42 million traditional telephone customers, 206.7 million wireless subscribers, 17.9 million Internet users and 2.6 million pay-TV subscribers.
Telefonica gets about 35% of its revenue from Spain, but it has been expanding its services in Latin America (which now accounts for 41% of its revenue) and the rest of Europe (24% of revenue).
The company’s Latin American expansion has helped offset weakness in Spain and Europe. The weaker euro is enhancing the contribution of its Latin American operations.
Telefonica is also making inroads in China: the company continues to expand its alliance with China Unicom, the country’s second-largest wireless carrier. In October 2009, each company bought $1 billion of the other’s stock. That boosted Telefonica’s stake in China Unicom to 8%. The partnership will jointly buy wireless equipment and build new networks to serve China’s growing communication market.
The ADRs yield a high 7.6%, and trade at just 7.2 times this year’s forecast earnings of $9 U.S. per ADR. However, that forecast could prove somewhat optimistic if the Spanish economy continues to experience difficulties.
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Q: May I ask your thoughts regarding Jollibee Foods Corp. in the Philippines? It’s been touted as an Asian version of McDonald’s.
A: Jollibee Foods Corporation, $1.78, symbol JBFCF on the Nasdaq over-the-counter market (Shares outstanding: 1.0 billion; Market cap: $1.9 billion), operates the largest American-style fast-food chain in the Philippines.
The company’s main global stock market listing is on the Philippine Stock Exchange. Jollibee’s restaurants operate under a number of banners, including Chowking (Chinese food), Greenwich (pizza), Red Ribbon (bakery), Delifrance (a European-inspired deli) and Manong Pepe’s (budget eateries).
As of March 31, 2010, Jollibee had 1,570 restaurants in the Philippines. The company also has 334 restaurants outside the Philippines, including 211 in China, 76 in the U.S., 20 in Saudi Arabia, 14 in Vietnam; 11 in Brunei and two in other parts of Asia.
In the three months ended March 31, 2010, Jollibee’s sales rose 8.3%, to 12.3 billion Philippines pesos (PHP), or $265.9 million U.S., from 11.3 billion PHP a year earlier. Earnings rose 22.6%, to 690 million PHP ($14.9 million U.S.), or 0.676 PHP per share ($0.015 U.S.) from 562 million PHP, or 0.55 PHP a share. Jollibee’s long-term debt of 2.3 billion PHP is less than its cash of 8.7 billion PHP.
Jollibee plans to keep expanding in the Philippines. As part of this strategy, it plans to add new brands. For example, it has entered into a joint venture to obtain the local franchise rights for popular Korean brand “Caffe Ti-Amo” (which means Coffee I Love You in Italian). Right now, Jollibee is building a new casual dining chain that specializes in coffee and Italian ice cream, and will operate under the Caffe Ti-Amo name.
Jollibee has a strong base in the Philippines, which has a stable and steadily growing economy. The company plans to keep using its strong domestic operations as a base for continued expansion in a number of high-growth international markets, including China. At the same time, it plans to expand slowly to cut its risk.
If you’re looking for authoritative advice on investment issues, or fundamental analysis of stocks you’re considering buying (or selling) — especially promising but exotic companies like Jollibee and Telefonica, you should join my Inner Circle service.
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