Today, I am going to speak from experience about ways I have seen investors and traders be their own...
Off the Beaten Path
01/06/2009 10:00 am EST
Nicholas Vardy, editor of Vardy’s Global Bull Market Alert, finds a cell phone operator that serves some of the fastest growing “frontier” markets.
In the past, I've called Luxembourg-based Millicom International Cellular SA (Nasdaq: MICC) the "Indiana Jones" of the cell phone industry.
Millicom’s strategy has been unique and daring. While the Vodafones and America Movils of the world slug it out in big cell phone telecommunications markets such as Brazil and India, Millicom has cobbled together a patchwork empire that consists of 16 countries in Central America, South America, Africa, and South and Southeast Asia.
In total, Millicom’s cellular operations are licensed to serve approximately 278 million people—a number approaching the population of the United States.
Although most of Millicom’s sales growth occurs in traditional Latin American markets, more than half of Millicom’s customers are in Africa and Asia. And that’s where much of Millicom’s future growth lies. Given the relatively low cell penetration rates, Africa is the fastest growing region of the world for cell phone use.
Indeed, in recent weeks Millicom emerged as the preferred bidder for yet another African country's, Rwanda's, third national telecoms license. Millicom also just announced that it is a consortium partner with cell phone giant Verizon, which has just taken a 15% stake in new Saudi fixed-line operator Optical Communications Co.
Just how successful has this strategy been? Even at today's share price [of $50]—which is down [about] 60% from its peak—Millicom’s split-adjusted stock price has soared more than 50-fold since July 2002. Not bad for the runt of the cell phone litter!
The collapse in Millicom's stock price from a peak of over $124 to around $27 was a classic case of throwing out the baby with the bathwater. Credit crunch or not, mobile telecommunications isn't going anywhere. If anything, it’s more important in developing countries that Millicom focuses on than in Sweden, where everyone has a home computer.
Nor is Millicom's current, absurdly low valuation supported by its recent financial results. Through the first nine months of this year, Millicom recorded a 53% increase in subscribers, bringing total subscribers to 30.6 million; a 35% increase in revenues; a 31% increase in earnings before interest, taxes, depreciation, and amortization (EBITDA), and a 39% increase in net profit. Yet at Monday's close, Millicom was trading at a trailing P/E of just below ten times earnings.
Equally importantly, from a technical standpoint, Millicom looks like it has established a solid up trend. And both brokerage firms Raymond James and Stifel Nicolaus have recently upgraded the stock with a target price of $64 to $66—about a 30% up side from Monday's close.
So, buy Millicom at market today and place your stop at $28.00. Here’s a word of warning: Millicom is a volatile stock. With a beta of 2.33, you can expect it to be more than twice as volatile as the Standard & Poor’s 500 index.
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