|
Taiwanese Telecom
Outperforms the Market by +27% in Less than Six Months
Published:
February 11, 2008
As
editor of our
Half-Priced Stocks newsletter, my focus is primarily
on U.S. stocks -- but from time to time I will venture overseas
in search of undervalued foreign companies with proven
competitive advantages and promising long-term outlooks.
That was the case last September, when I scanned the vast
ADR
marketplace to find a handful of firms with rich 5%-plus dividend
yields and deeply discounted share prices. It was that search
that turned up Chunghwa Telecom (NYSE: CHT, $20.45), a former
state-owned telecommunications services provider in Taiwan.
Thanks to sweeping regulatory changes enacted a decade ago,
privatization has allowed individual investors a piece of this
highly profitable business.
Chunghwa is Taiwan's only integrated provider of all three major
telecom services (fixed line, wireless and Internet). That lends
itself to powerful economies of scale and gives the firm a
natural competitive advantage when it comes to bundling these
services -- and today it's a clear market leader in all three.
The firm controls a dominant 95%-plus share of Taiwan's
fixed-line phone business and has built an established base of
around 13 million traditional phone customers. The Taiwanese are
also fond of their cell phones, with a nationwide wireless
penetration rate of 90% -- among the highest in the world. And
Chunghwa happens to be Taiwan's leading wireless provider,
offering services to nearly 9 million users -- many of which
have migrated to the more profitable third-generation (3G)
mobile service. Finally, Chunghwa is also Taiwan's undisputed
leader of broadband Internet and high-speed data services, and
has now enrolled more than 4 million subscribers.
Combined, those services churn out roughly $2 billion per year
in annual free cash flow, most of which is returned to
shareholders in the form of dividends. At the time of my report,
CHT shares were changing hands for just $17.50, but I calculated
a true fair value of at least $20 per share, And the shares have
since made up the difference, closing Friday just above my
target price at $20.45 -- a solid gain of +17% in less than
six months. Meanwhile, the S&P 500 has dropped nearly -10% over
the same period. In total, this means CHT has beaten the market
by a sizeable +27%.
In this month's
Half-Priced Stocks newsletter, I zero in on another
established market leader trading at a sharp discount. The firm
has already seen its earnings surge +350% over the past five
years, and 2008 looks to be another banner year. Thanks to heavy
infrastructure spending in emerging markets, the company can't
keep pace with demand and currently has a $4 billion order
backlog -- +65% more than this time last year. However, this
recent market sell-off has left the shares with the potential to
gain +45% before reaching their fair value.
To read my complete profile of this exciting firm -- available
only to subscribers -- I invite you to join us at
Half-Priced Stocks. To learn more, please
visit
this link.
|
Nathan Slaughter
StreetAuthority Staff Writer
|
Income Security
of the Month
Our "Income Security of the Month" for July 2008 invests in
a fast-growing overseas market that doesn't get much exposure in the
mainstream financial press. And although it typically makes enormous
annual dividend payments -- it has paid an average dividend of 24.9%
per year over the past five years -- this fund is perhaps most
appealing for its total return potential. Specifically, the fund has
delivered total returns of +263.9% since 2003, and
it ranks in the top 10% of its category over the past decade.
|
Top
10 Stocks for 2008!
Since we began publishing this report back in 2003, the picks we've
featured have consistently beaten the broader market -- delivering average
gains of +21.3% per year and outperforming the S&P by a nearly
2-to-1 margin. Act now to reserve your copy of our newest report -- Top
Ten Stocks for 2008. |
|
|
