Daniel Nathel

Eight Brazilian Telecom Stocks Worth Calling

Latin American stocks have been looking pretty hot this year; both 52 weeks and even more so, just in 08. While America looks like Rome falling, South America (particularly Brazil) looks like it will soon come to rise as an area of equivocal development. More importantly to us right now though is that as developed products continue to steadily spread through out, the value of the companies guiding the distribution are going to grow in harmony with that spread. One product in particular that I like in Brazil is wireless.

From 2005 to 2007 Brazil's wireless subscriber base grew by just under 50% approaching 120 million (~2/3 of the pop.), and Oi, the Tele Norte Leste Participacoes S.A. (TNE) wireless brand, was there to capture that growth, and looks like it will continue to do so. TNE has had a strong hold over the land lines industry for a long time, but that business, which represents a little less than half of their revenue, has not been going any where as it looms as a thing of the past. They also provide internet, digital tv, etc... wireless only represented about 16% of their business in the middle of '07. They recently acquired a bunch more licenses to expand their wireless business in Brazil and I think that will help increase their value.

TNE does $10.29 bil in revenue, has a market cap of 9.91 bil, but has $2 bil more debt than cash (which is common to the industry, in a smaller proportion). Their cash flow is pretty high though, and they have been good about paying off their debt. Institutional owner ship is less than 50% and about 2 million shares trade per day. Other players in the industry including Tele Norte Celular Participacoes (TCN), Telecomunicacoes de Sao Paula (TSP) and Vivo Participacoes (VIV) are all trading at higher earning multiples, and so is the Mexican giant America Movil (AMX). In the 8 times trailing and future earnings range TNE looks like a good buy with a lot of growth potential. If the conference call goes well this Friday I would expect TNE to continue on its upward trend.

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Disclosure: I may or may not purchase any or all the companies included in this article.