Editor's note: This column was submitted by Stockpickr member Martin Guerrero.
The stock prices of wireless-handset makers such as
Research In Motion
( RIMM) and
have been soaring. While buying the stocks of handset makers would be one way to profit from the wireless boom, there are other, overlooked ways to profit from the growth.
One such route is to invest in emerging-market wireless telecom companies, which are enjoying better growth than their peers in developed nations. According to CTIA - The Wireless Association, the United States had a 72% wireless penetration rate as of late 2006. Many nations such as Italy, Sweden and the U.K. already have more than 100% wireless penetration -- that is, multiple phones per person. As a result, it becomes more difficult to grow revenue in these countries.
In emerging markets, however, wireless penetration is much lower, allowing more opportunities to grow revenue. As an example, in Latin America and South America, wireless penetration is expected to be 60% by 2010.
In emerging markets, landline phones can be very limited and wireless can be the only way to make calls. Wireless telecommunication is becoming more important worldwide, and people in emerging markets like India are more willing to use technologies like text messaging. Mobile phones are becoming part of the worldwide culture.
Here are four ways to profit from the boom in emerging-market wireless telecom.
. Mexico-based America Movil is the dominant player in Mexico and the Latin America and South America region.
This $107 billion company has a forward
price-to-earnings ratio of 14.5 and a five-year estimated growth rate of 32.1%, giving it a very cheap PE-to-growth (PEG) ratio of 0.45 (less than 1 is very cheap). According to research from Research and Markets, key drivers for America Movil are low wireless penetration in Latin America, increasing demand of mobile Internet and revenue growth from mobile content.
America Movil is also the company that made Carlos Slim Helu one of the richest men in the world. Jim Cramer has said that we should "start copying the best guy with the best stock ... Carlos Slim." To see all of his holdings, check out the
portfolio on Stockpickr.com.
. This Reston, Va., company is a spinoff from Nextel -- which is now known as
-- and serves Latin America countries, including Mexico, Brazil, Argentina, Peru and Chile.
This $13.8 billion company has a forward PE of 22.5 and a five-year estimated growth rate of 40%, for an inexpensive PEG of 0.56. Together with America Movil, these two companies offer great growth in the Latin American and South American wireless market.
. Moscow-based Vimpel-Communications services Russia and countries in the Commonwealth of Independent States that were part of the Soviet Union.
This $21 billion company has a forward PE of 13.4 and a five-year estimated growth rate of 24.1%, for a low PEG of 0.56. Major competitors include Mobile TeleSystems and MegaFon, but since Vimpel trades here as an American depositary receipt, it remains the easiest Russian wireless telecom for U.S. investors to own.
Wireless penetration rates in Russia and Ukraine are a little over 100%, but wireless penetration is much lower in Kazakhstan (51.7%), Tajikistan (11.9%), Uzbekistan (10.4%) and Armenia (37%), according to Vimpel. The company has a 31.7% market share in Russia, 49.5% in Kazakhstan, 3.8% in Ukraine, 8.9% in Tajikistan, 28.2% in Uzbekistan and 38.2% in Armenia.
. China Mobile is now the world's largest mobile operator, with its subscriber base exceeding 300 million.
This $233 billion company's five-year expected growth rate is 24%. With wireless penetration in China around 30%, there is still a lot of growth.
Julie Pohlig, senior analyst at Vital Wave Consulting, offers interesting insight into Chinese subscribers in an April 6 article on Cellular-News.com. Chinese subscribers rely on prepaid phone cards and pay 80% less than Americans for mobile phone service, but their monthly investment per month represents 7% or more of their salary. This says "a lot about the perceived importance of telecommunications in that society," Pohlig points out.
There are many other good emerging-market telecom companies out there, but the four companies above represent the wireless telecom plays that cover a good portion of the emerging markets.
At the time of publication, Guerrero was long Apple, America Movil and NII Holdings, although positions may change at any time.
This article was written by a member of the Stockpickr community.
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