Dial Up Deutsche

11/25/2005 12:00 am EST


Keith Fitz-Gerald

Chief Investment Strategist, The Money Map Report

"The next few years will offer unparalleled chance to make a fortune by investing in communications," notes Keith Fitz-Gerald. "But the best opportunities will be played out largely outside the US, so for our latest buy, we're going to Germany."

"According to the Telecom Industry Association (TIA), the industry is expected to grow at double-digit rates reaching over $2 trillion a year in 2008 outside of the US. There are four principal drivers for this growth: improving economic conditions throughout the world, growth in infrastructure equipment investment, demand for mobile devices, and wireless services. Sad to say, the American government is sorely lagging practically every other country in the world in figuring out how to regulate telecommunications as information services. Moreover, I’d even go out on a limb and say our government is downright hostile toward this kind of innovation, which is why we need to look elsewhere for real value in this sector.

"So to invest in telecom growth, we're going to Bonn, Germany. DeutscheTelekom (DT  NYSE) operates in 50 countries on six continents and is a truly global player in many respects. This gives it the size, scope, and scale I drool over because all three of these factors scream certainty. In other words, we are not talking a risky flyer here. DT is a proven company, poised for some significant growth and returns in the next few years. This increases our odds of success dramatically.

"Its T-Com division is responsible for fixed-line telecom services in Germany and Eastern Europe. T-Mobile, fronted by the ever-gorgeous Catherine Zeta-Jones, offers international roaming services for global mobile communications systems. And general packet radio service is available to subscribers through international roaming agreements with third-party operators. T-Systems provides information services to German and international accounts, nonprofits, and governmental agencies. T-Online offers Internet services in Germany, and through third-party distributors in North America and Europe.

"The bottom line is that DT has every base covered. They are well positioned to compete with the basic phone services and are taking steps to ensure that they handle the data stream as well. For that, I applaud them. Revenues are a whopping 29.1 billion euros ($34.9 billion), a 3% increase year-over-year. That number may not flip your switch, but that’s not the whole story. Get this: DT’s annualized earnings per share growth rate is 270.08%. Combined with the fact that the stock is trading near the bottom of its range says to me that things look ready to light up.

"Like other telecoms worldwide, DT caught the growth bug in the late ’90s and took on too much debt. But that’s changed now. C EO Kai-Uwe Ricke has conducted the equivalent of a slash-and-burn campaign in the last few years with great success. He sold off anything and everything that doesn’t contribute to overall profitability. The firm has a projected earnings per share growth rate of nearly 20% for next year and is trading at a P/E of 10.13. Plus, they just increased their dividend by 54%. This makes it one of the most appealing of the telecom choices anywhere in the world. Buy up to $19 a share. Enjoy the 4.40% yield and be prepared to target a return north of 50% in the next 24 months."

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