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In this article, via an analysis based of the latest available Q4 institutional 13-F filings, we identify the stocks in the telecom services group that are being accumulated and those being distributed by the world's largest fund managers. We have included in this group domestic and foreign wireline, wireless and integration telecom services companies. These mega managers, managing between $50 billion and over $700 billion in 13-F assets, control over 35% of the assets invested in the U.S. equity markets, but number just over 30 out of the tens of thousands of funds that invest in the U.S. equity markets. Taken together, they are bearish on the group, cutting a net $6.55 billion in Q4 from their $189.95 billion prior quarter holdings in the group.

The following are the telecom services group companies that these mega fund managers are most bullish about, that are undervalued compared with their peers, and that also have a high dividend yield (see Table):

Vimpelcom Ltd. (VIP): VIP is one of the world's largest integrated telecommunications services operators, offering wireless, fixed-line and broadband voice and data services in Russia, Ukraine, Kazakhstan, Uzbekistan, Tajikistan, Armenia, Georgia, Kyrgyzstan, Vietnam, Cambodia, Laos, Algeria, Bangladesh, Pakistan, Burundi, Zimbabwe, Central African Republic, Italy and Canada. Mega funds together added a net $296 million in Q4 to their $556 million prior quarter position in the company, and taken together mega funds hold 5.5% of the outstanding shares. The top buyer was JPMorgan Chase & Co., with $1.3 trillion in assets under management ($301 million), also the top holder at $646 million.

In its latest Q4 (December), issued in mid-March, the company missed analyst earnings estimates. Its shares have drifted lower since the report, and currently trade near all-time lows at 7-8 forward P/E and 1.1 P/B compared to averages of 18.4 and 3.0 for its peers in the diversified communications services group, while earnings are projected to rise strongly from 28c in 2011 to $1.31 in 2013. Also, it sports a high 6.7% dividend yield compared to average 3.7% for the group.

Telefonica SA Adr (TEF): TEF is a Madrid, Spain-based provider of local exchange, long distance, network access, internet and wireless services in Spain, Latin America, and the rest of Europe. Mega funds together added a net $49 million in Q4 to their $481 million prior quarter position in the company, and taken together mega funds hold 0.8% of the outstanding shares. The top buyer was Bank of America, with $169 billion in 13-F assets ($64 million), and the top holder was Franklin Resources ($220 million).

In its latest Q4 (December), issued in late February, the company reported lower revenue year-over-year and sequentially, with earnings coming in substantially higher at 77cents v/s 40 cents in the year-ago prior quarter and a 13 cent loss in the prior quarter. Its shares have drifted lower since the report, and currently trade near multi-year lows at 7-8 forward P/E and 2.3 P/B compared with averages of 18.4 and 3.0 for its peers in the diversified communications services group, while earnings are projected to rise from $1.64 in 2011, to $2.02 in 2013. Also, it sports a high 11.5% dividend yield compared to average 3.7% for the group.

Frontier Communications Corp. (FTR): FTR provides regulated and unregulated voice, data, and video services to residential, business and wholesale customers in the U.S. Mega funds together added a net $21 million in Q4 to their $767 million prior-quarter position in the company, and taken together mega funds hold 23.4% of the outstanding shares. The top buyer was New York-based Bank of New York Mellon Corp., with over $1.2 trillion in assets under management ($40 million), and the top holders were Vanguard Group, with $1.6 trillion in assets under management ($180 million), Bank of New York Mellon Corp. ($131 million) and State Street Corp., with $565 billion in 13-F assets ($126 million). BNY Mellon subsequently filed its March 2012 quarter, in which it cut 6.3 million shares from its 38.6 million share prior quarter position.

FTR reported its Q1 (March) on Monday, with revenue coming in line and earnings missing analyst estimates by a penny (5 cents v/s 6 cents). Its shares reacted sharply to the downside on the miss, dropping even further into all-time low territory, now down over 30% year to date. Its shares trade at 15-16 forward P/E and 0.8 P/B compared with averages of 16.3 and 4.1 for its peers in the regional (rural) wireline group, while earnings are projected to fall slightly from 25 cents in 2011 to 22 cents in 2013. Also, it sports a high 11.4% dividend yield compared with average 9.0% for the group.

The following are some additional stocks in the telecom services group that mega fund managers accumulated in Q4 (see Table):

  • SBA Communications Corp. (SBAC), that operates cellular towers in the U.S. and provides leasing services to wireless service providers, in which mega funds together added a net $1.51 billion in Q4 to their $1.99 billion prior-quarter position in the company;
  • NII Holdings Inc. (NIHD), that provides wireless communications services under the Nextel brand name to businesses and individuals in Mexico, Brazil, Argentina, Peru, and Chile, in which mega funds together added a net $71 million in Q4 to their $735 million prior-quarter position in the company;
  • China Mobile Ltd. (CHL), that is a Hong Kong-based digital wireless voice and data services company primarily in mainland China, serving over 600 million customers, in which mega funds together added a net $64 million in Q4 to their $1.04 billion prior-quarter position in the company;
  • Windstream Corp. (WIN), that provides communications and technology solutions in the U.S., including IP-based voice and data services, multi-protocol label switching networking, data center and managed services, hosting services, and communications systems to business and government agencies, in which mega funds together added a net $51 million in Q4 to their $1.21 billion prior-quarter position in the company; and
  • Broadband wireless network services provider Clearwire Corp. (CLWR), in which mega funds together added a net $48 million in Q4 to their $67 million prior-quarter position in the company.

Besides these, mega fund managers based on their Q4 trading activity indicated that they are bearish on the following stocks in the telecom services group:

  • Level 3 Communications (LVLT), the operator of one of the largest Internet backbones in the world, and also one of the largest providers of wholesale dial-up service to ISPs in North America, and a primary provider of Internet connectivity for millions of broadband subscribers through its DSL and cable partners, in which mega funds together cut a net $2.11 billion in Q4 from their $2.57 billion prior-quarter position;
  • American Tower Corp. (AMT), that operates cellular towers used by wireless service providers and TV and radio broadcast companies, in which mega funds together cut a net $2.02 billion in Q4 from their $12.52 billion prior-quarter position;
  • Vodafone Group Plc (VOD) is a U.K.-based provider of digital wireless voice and data services, and the world's largest international mobile communications company offering its services to over 350 million customers in over 40 countries, in which mega funds together cut a net $1.12 billion in Q4 from their $7.41 billion prior-quarter position;
  • Centurylink (CTL), an integrated communications company that provides a range of communications services, including voice, Internet, data and video services in the continental U.S., in which mega funds together cut a net $778 million in Q4 from their $10.22 billion prior-quarter position; and
  • Leap Wireless Intl Inc. (LEAP), that is a provider of mobile wireless voice and data services under the Cricket brand name to more than 5.5 million customers in the U.S., targeting the needs of those underserved by traditional telecom services companies by offering pay-as-you-go types of services, in which mega funds together cut a net $8 million in Q4 from their $187 million prior-quarter position.

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Credit: Fundamental data in this article were based on SEC filings, Zacks Investment Research, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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Source: Top Undervalued High-Dividend Telco Services Stocks Being Accumulated By Mega Funds