Spain's Telefonica: Contrarian Telecom Pick

| About: Telefonica S.A. (TEF)

I originally recommended Telefonica SA (NYSE:TEF) on November 6, 2006 (IWB #2639) at US$58.29. The stock closed Friday at US$55.77.

We originally recommended this Spanish-based telecommunications giant in November 2006 at US$58.29 and suggested taking some profits after it moved to the US$80 range.

In my last update in March of this year, I suggested buying the stock again when it was trading in the low US$70s. It is even better value now since it got slammed along with all the rest of the southern European issues when the Greek crisis went viral.

Telefonica is similar to Santander in that they both generate 40% of their revenues outside Spain and since the stock has come off so much recently I think this a good point to enter. The company reported first-quarter results last week and they showed earnings per share of €0.36, up 2.6% from a year ago.

The company has made an unsolicited offer to buy the shares of Brasilcel, N.V. from its partner Portugal Telecom for €5.7 billion. The bid is an attempt to gain control of Vivo Participacoes SA (NYSE: VIV) which is the largest wireless provider in Brazil. Brasilcel owns about 60% of Vivo Participacoes. This offer is in response to America Movil's (NYSE: AMX) move to consolidate its own Brazilian assets. If the bid is successful, it will boost Telefonica's long-term prospects. Portugal Telecom's directors rejected the bid but that does not mean the fight is over by any means.

Action now: Buy with a target of $70.

Disclosure: Author holds a long position in TEF