Band Rings up Japan...
03/12/2004 12:00 am EST
"Low-risk, value-rich stocks have done well for us, and we expect the pattern to continue," says Richard Band, editor of Profitable Investing."Focus your new buying on companies that are trading at low p/e ratios relative to their growth prospects." Here, he looks at Japan's NTT.
"My latest blue-chip buy this month is one of the most famous brands in Asia,Nippon Telegraph & Telephone (NTT NYSE). This company is Japan's equivalent of the old AT&T, providing local phone connections and long distance, plus fast-growing new-age services such as wireless and high-speed Internet (for businesses and households alike). Formerly a lumbering government monopoly, NTT has gradually privatized and modernized itself. Among the shareholder-friendly strategies adopted under the new regime, NTT has bought back over $1 billion worth of its own stock just since September 2002.
"The company has also changed its financial reporting to conform to US standards. As a result, anybody who cares to dig into the numbers can now see that the stock is remarkably cheap. One good way to compare telecoms across national borders is to take the enterprise value (the current market price of all the stock outstanding, plus the face value of any bonds) and divide it by cash flow (earnings before interest, taxes, depreciation and amortization). Analysts call this the EV/EBITDA ratio. For the three major US telcos (BellSouth, SBC, and Verizon ), the average ratio is currently 6.7. For NTT, it's a mere 3.3. That's less than half ofwhat you would pay for a US phone company.
"Here's something even more amazing. NTT has a thriving cellular subsidiary, NTT DoCoMo (DCM NYSE). The parent company owns roughly 62% of this separately traded stock. At current market quotes, NTT's holdings in DCM are worth about $20.70 per NTT share. NTT itself is changing hands around $23. So you can own all the rest of NTT-51 million local and long distance subscriber lines, together with the Internet goodies- for only about a tenth the price of the stock. To me, NTT reeks of a downright giveaway. No wonder Charles Brandes, one of the world's savviest international investors, has lapped up $616 million worth of the shares. Buy NTT at $25 or less. My target is a 30% gain within a year, and a double within the next three or four years."