Profiting From the Global Cellular Wireless Boom

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 |  Includes: AMX, CHL, GOOG, MBT, NOK, S, SKM, T, TKC, VOD, VZ
by: Dhinesh Ganapathiappan

At the end of 2006, the United States had 233 million wireless subscribers and penetration of over 76% of the population. This represents tremendous growth from the year 2000 when subscribership first broke the 100 million user mark. Global adoption of cell phones is increasing at a rapid pace and helping foreign wireless carriers generate huge profits.

Even as handset makers like Motorola (MOT) and Nokia (NYSE:NOK) struggle amid razor thin profit margins and stiff competition, foreign wireless providers are thriving. Unlike actual cell phone makers, these carriers can be compared most closely to Cingular (NYSE:T), Verizon (NYSE:VZ), or Sprint (NYSE:S).

Foreign wireless providers often operate in a monopolistic environment which provides greater pricing power, and the ability to capture a large portion of new subscribers.

The best approach to investing in the foreign cellular wireless boom is to identify regions of the world that have stability and population growth accompanied by economic development. The best method to analyze the financial position of companies is to look for growth at a reasonable price, often referred to as GARP investing. Even after years of rising stock prices, there are several standouts that are poised to continue to rake in both new subscribers and significant profits.

In Mexico, America Movil (NYSE:AMX) was founded by Carlos Slim Helu, the third richest man in the world. The company has transformed into the largest corporation in Latin America by market value and boasts over 108 million subscribers. America Movil commands a market share in Mexico upwards of 80%, giving it a great deal of monopolistic flexibility. The $86 billion market cap may seem overdone compared to the $110 billion valuation of Verizon, but the forward P/E ratio of 12.4 shows that it will soon be cheaper than Verizon.

Analysts overwhelmingly like America Movil and bless it with 8 buy recommendations, 1 hold, and no sells. Major mutual funds like the Fidelity Contrafund [FCNTX] have made significant investments in the company along with inflows from numerous Latin America and emerging market funds.

Another strong carrier is Turkcell (NYSE:TKC), providing service to 30 million subscribers primarily in Turkey. The company is valued very cheaply and continues to produce strong growth. The current P/E ratio is merely 14 with a market cap of $11.6 billion. Turkcell is a great value and growth play that will shine when investors and mutual funds seeking to invest internationally uncover it. Eastern Europe is a fundamentally sound region of the world and continues to show robust growth following the end of the Cold War almost twenty years ago.

Russia is another Eastern European wireless play with great upside. Mobile TeleSystems (NYSE:MBT) is the $22 billion giant in the region and has seen its stock double in value over the past year. Unlike Turkcell, Mobile TeleSystems trades at a higher P/E ratio of 17. Mobile TeleSystems also pays no dividends, while Turkcell pays out a 3.45% annual yield. Both stocks have a great deal of upside remaining.

Two giants in the wireless telecom industry are Vodafone (NASDAQ:VOD) and China Mobile (NYSE:CHL). Vodafone is the “Microsoft” of the industry – a giant that has expanded so much that it has become extremely difficult to grow any more. Over the past 3 years the stock has delivered investors no more than its 4.54% dividend yield. Vodafone claims over 170 million customers and should continue to make a consistent stream of revenues.

China Mobile has added 200% to its stock price over the past 3 years and doesn’t appear to have significant additional upside. The rich valuation of $178 billion at a P/E of 23 makes it a highly unlikely candidate to double within the next few years.

A large concern of investors putting money in fragile regions of the world is political stability. Many of these fears are overblown and can be avoided by not investing in war-torn, war-prone, or shaky political institutions. SK Telecom (NYSE:SKM) is the dominant carrier in Korea, but its exposure to precarious South Korea has hindered the stock, leaving it with a low P/E ratio of 9.

Foreign stocks in general continue to be good investments, and the wireless industry is a safe bet for the years to come. Cell phone penetration rates will continue to increase as consumers in developing countries discover the benefits of mobile devices, and the top foreign carriers will happily collect these profits.