U.S. and European wireless service providers have watched debt woes, an industry spending slowdown and profit shortfalls batter their stock prices in the last few months, and to an extent, their Latin American counterparts have been caught in the downdraft.
But some observers believe the stronger plays in the sector may lie south of the border. Analysts see growth opportunities, especially in Brazil and Mexico, where high demand, lower valuations and relatively low debt levels could put Latin American wireless service providers in a position to avoid the broader industry fallout. The number of cellular customers in Mexico, Latin America's second biggest cellular market, nearly doubled last year to 14.2 million, according to estimates by Lehman Brothers. And the firm expects total subscribers in Mexico to grow 40% to about 19.9 million by the end of this year.
According to Edward Bozaan, head of Waterford Partners, a hedge fund that searches for the best values in high-risk emerging markets, people in many Latin American countries have an easier time getting a prepaid cell phone plan than getting a land line installed. "It was revolutionary in Brazil," he says, estimating that 40,000 people stood in line during the first few days when providers started offering prepaid cell phones in Rio de Janeiro.
Bozaan tends to look for investing opportunities in countries that are out of favor. "Brazilian wireless is cheaper because two things are pushing them down," he says. "They've been hit by Argentina's crisis and the generally poor sentiment that people have about Brazil."Of course, investing in the emerging markets of Latin America comes with risks. Goldman Sachs cut its investment ratings on Argentina and Brazil earlier this month, citing domestic troubles. The ongoing debt crisis in Argentina and Brazil's drought and energy shortage, which threaten to hurt the nation's GDP growth and whittle down consumer demand, would certainly lead some investors to be cautious about putting their money in the region. Still, some market watchers believe that earnings growth, future acquisition potential and increasing financial transparency make Latin American wireless companies good bets for the long run. For instance, fund shop Janus
|Company||Origin||Ticker||Price US$ 6/4/01||52-week High||52-week Low|
|Tele Celular Sul||Brazil||TSU||$20.06||$50.50||$15.90|
|Tele Nordeste Celular||Brazil||TBE||$43.50||$53.37||$27.25|
|Tele Norte Celular||Brazil||TCN||$27.54||$58.37||$24.00|
|Source: Standard & Poor's ComStock|
Analysts are generally bullish about Mexico's America Movil, a spinoff from Telefonos de Mexico (TMX). America Movil also holds a 44% stake in Telecom Americas, a joint venture with Bell Canada International (BCICF) and San Antonio's SBC Communications (SBC). Rossi has a $30 price target on America Movil, The company's shares, which have a 52-week high of $23.29 lately traded at $20.78 on the