Today I’m going to tell you that you should buy a Spanish phone company. Your friends may laugh at you. Let them. It’s easy to repeat Warren Buffett’s advice at dinner parties: “Be fearful when others are greedy, and greedy when others are fearful.”
It’s harder to follow when it comes to your own portfolio. But that is exactly what I recommend you do with this Spanish company.
Europe has been under the spotlight lately for all the wrong reasons. The so-called PIIGS—Portugal, Ireland, Italy, Greece and Spain—have too much debt and not enough growth. This is a dangerous mix. And it has brought with it spiraling sovereign-debt yields and heavy sell-offs in European stock markets.
At writing, this Spanish company is down nearly 8% for the year. On the surface this may seem reasonable. Most people don’t want to touch Spanish-based investments, given the lead role the country has played in Europe’s debt crisis. But when you take a closer look, you’ll see that this Spanish company gives you a rare opportunity to buy an “A-list” company at a “D-list” price.
It has been in business for the last 87 years—an admirable track record of success. And it currently provides fixed and mobile phone services, broadband Internet, and cable and satellite television to a customer base of 290.5 million.
That is over six times the population of Spain. You see, this isn’t really a Spanish company at all. It’s a global one. More than 60% of its business is outside of Spain. And almost half its sales revenues comes from emerging markets. It is particularly strong in Latin America.
That puts it in what I call the “sweet spot” for growth. Emerging economies are experiencing much stronger economic expansion right now than developed economies. This means the use of mobile phone and Internet services will rise, as emerging-market middle-class consumers do what middle-class consumers do everywhere: Adopt new technologies.
Not only will they buy mobile phones, but they will also want to own the latest smart phones and tablet computers—a market with huge growth potential for this company. We are already seeing bigger shipments of smartphones to Latin America, a phenomenon that is being driven by rising incomes, cheaper devices, and carriers moving more customers to (Internet-compatible) 3G networks. It is hard to think of a market that has more potential right now.
As I type, it’s trading on a P/E of just 6.9. That is a bargain valuation for a company with such emerging-market credentials that has grown earnings at an average of just under 15% a year over the past five years.
Even better, the dividend yield is huge—at 9.4%. This means for every $1,000 you invest in this stock, it will pay you $94 back a year.
This is a great opportunity to follow Warren Buffett’s contrarian mantra and be greedy when others are selling. Right now, mainstream investors are selling this stock along with just about every other Spanish stock. But what they are forgetting is its emerging-market reach.
And not only is it a great buy if you’re looking for emerging-market exposure, it’s also a great defensive play in the face of high levels of global stockmarket volatility.
As investors finally start to understand that the U.S. economy isn’t recovering anytime soon, they will seek out stocks in defensive sectors such as telecom, utilities, and health care. They will also start to search for yield. This company ticks both these boxes.
At writing, the company’s shares are selling for 42% below what I consider a much better reflection of this company’s underlying value.
I give all the details on page 22 of the current issue of International Living magazine. Subscribe now and get instant access to my investment article.