The market continues to struggle. Wednesday’s market consisted of a good rally in the morning giving way to a flat close. As detailed in numerous articles, I believe the market is at best dead money over the next six months. Rising gas prices, increasing inflation, Middle East turmoil, European Debt Contagion fears, a moribund housing market and the end of QE2 are just some of the major headwinds the market is facing. I think “safety” is the word of the day for investing in this market for the rest of year. One of areas that might have some bargains left, is the beaten up European Telecom market. The stocks have been hindered by worries about slow growth and sovereign debt contagion. However, these stocks cash flow and high dividend yields could be enticing here and put a floor under their stock prices. Here are a few that might be worth looking at:
France Telecom– FTE is selling at nine times this year’s and next year’s consensus earnings. Earnings estimates have increased approximately 5% over the last ninety days for both 2011’s and 2012’s projected net earnings. It low single digit revenue growth is offset by a low valuation and a generous yield of 5.7%.
Telefonica– TEF is selling at roughly ten times both this year’s and next year’s projected earnings. It yields a very rich 5.5%. This is one of my favorite high yield stocks, and I have recommended it in other articles. The stock has been punished due to the problems in Spain. However, the majority of its revenues come from outside Spain primarily in Latin America; where prospects are good. In addition, the company’s efficiency efforts in Spain and throughout Europe seem to be yielding good results and offsetting revenue declines there. I believe this company is well positioned for the future and its high dividend yield puts an effective floor under the stock price.
Nokia – NOK is the riskiest of these three picks, albeit the one with the most upside if it can stage a successful turnaround in the smartphone market through its partnership with Microsoft and/or continues to benefit from its market leader status in the low and medium price point share of the emerging market handset universe. Despites its myriad of challenges over the last two years, it has increased operating cash flow by 40% over that time period. It sells at 13 times this year’s earnings and 12 times projected earnings for 2012. It also has over $3 per share of net cash.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.