Pat McKeough responds to many personal questions on specific stocks and other investing topics from the members of his Inner Circle. Every week, his comments and recommendations on a selection of the most intriguing questions of the past week go out to all Inner Circle members. And every Friday, we offer you one of the highlights from these Q&A sessions.
This week, one Inner Circle member asked about one of the largest telecommunications firms on the world stock market. Pat looks at the prospects and potential pitfalls ahead for a company that seeks to expand its presence in international markets.
Q: Pat: I have been looking at Telefonica. About two-thirds of their business is outside Spain, with a good part in Brazil, and it seems to be growing. I think it’s a hidden gem. Your view?
A: Telefonica SA (ADR, symbol TEF on New York; www.telefonica.com), provides a range of telecommunications services, including telephone, mobile, Internet, data and entertainment. Telefonica mainly operates in Spain, Portugal and a number of Latin American countries.
In July 2011, the company started implementing its plan to lay off 20% of its Spanish workforce (or 6,500 workers) over three years. It will also cut other costs in Spain and use these savings to increase its investments in Latin America, particularly Brazil.
The company has 231.9 million wireless subscribers, 40.4 million traditional telephone (or land line) customers, 19.0 million Internet users and 3.2 million pay TV subscribers.
Telefonica’s growing Latin American operations have helped offset weakness in Spain and Europe. The weaker euro is also enhancing the Latin American business’s contribution.
Telefonica now gets 46% of its sales from Latin America, followed by Spain (28%) and the rest of Europe (26%).
As a member of my Inner Circle, you will get individual answers to your personal investment questions. And you will see my answers to questions other investors like you are asking. In fact, you will get virtually all the investment advice I have to give. You will have access to all of our advisories – The Successful Investor, Wall Street Stock Forecaster, Stock Pickers Digest and Canadian Wealth Advisor – and full access to the members-only, password-protected Inner Circle section of The Successful Investor Network website.
Although my team carefully researches all the stocks that members ask about, I personally review each and every recommendation. To ensure this close personal attention, only a limited number of members can be admitted to our Inner Circle. Under the pressure of world events, even more investors are asking for my personal investment advice. We are nearing our membership limit already. Click here to secure your membership in the Inner Circle right away.
World stock market: Telefonica expands its partnership in China
The company has also expanded its alliance with China Unicom, the second-largest wireless carrier in China. In October 2009, the companies bought $1 billion of each other’s stock. In January 2011, they bought a further $500 million of each other’s shares.
These share purchases increased Telefonica’s stake in China Unicom to 9.7%; China Unicom now holds 1.4% of Telefonica.
In December 2011, Telefonica announced its first dividend cut in a decade. The 2012 cash dividend will amount to 1.30 euros per share, down 18.8% from 1.60 euros in 2011. The ADRs still yield a high 9.8%, based on the new rate.
In the latest Inner Circle Q&A, Pat looks at the risk posed by Telefonica’s relatively high debt. He also examines just what impact Telefonica’s initiative in the Chinese wireless market could have on the company’s future growth. He concludes with his clear buy-hold-sell advice.
Inner Circle members see Pat’s analysis and recommendations on the stocks that other members have asked about in each week’s Inner Circle Q&A. You can view it immediately when you become a member of this unique investment group. You will get Pat McKeough’s answers to your personal investment questions, full access to our members-only Inner Circle website, and many other membership privileges. Click here to get started right away.
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