Top Picks 2007: Mostrous talks up Taiwan telecom

Posted Dec 25th 2006 2:30PM by Steven Halpern
Filed under: China, Newsletters, ETF Investing

Each year Steven Halpern, editor of TheStockAdvisors.com, surveys the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is part of his 24th annual Top Picks Report.

Taiwan-based Chunghwa Telecom Co. (NYSE: CHT) is the favorite conservative idea for 2007 from Yiannis Mostrous, editor of The Silk Road Investor, and author of the recently published book of the same name.

The global advisor notes, "Taiwan remains a political market in the sense that until the unification issue is resolved, there will always be a 'lid' on Taiwan's economic growth. But once the political issues are addressed, Taiwan's market will decisively move higher.

"Although this adds an element of risk to investing in Taiwan, the Taiwanese market could perform well this year as it is one of the cheapest in Asia (eight years of underperformance), is disliked by all, and offers a 3.7% dividend yield. (Dividends are taxed in Taiwan, and U.S. stockholders can use the net amount of the withholding tax as a credit.)

"Chunghwa Telecom is the best bet on this market; it's a fairly stable company offering steady income and upside potential. Chunghwa is the main telecom company in Taiwan, and the Ministry of Transportation and Communications owns 41.48% of it. Chunghwa is the best telecom play in Taiwan, as both its fixed and mobile operations enjoy strong market positions.

"The company's commitment to returning capital to stockholders is a central part of its strategy. Chunghwa's leadership recently noted that it's in discussions with the Taiwan government to ease regulations on special dividends. It therefore appears as if the company is planning to offer more special dividends in the near future.

"Meanwhile, Chunghwa Telecom's 7.5% dividend yield contributes to its overall stability. In addition, management recently bought back 250 million shares in the open market to help offset a one-off personnel cost incurred from its privatization last year."

To see Yiannis's favorite speculation for 2007, click here.