"Investors have shied away from the big telcos in recent years because of concerns that their traditional businesses were shrinking," notes George Putnam III, an expert in uncovering turnarounds.
But now, he explains, "After years of concern about the cable companies invading their turf, the big telecoms are now well positioned to fight back."
In his The Turnaround Letter, the advisor looks at seven leaders in the global telecom space, all of which he says represent global leaders, with dominant positions in their local markets and the "potential to grow steadily by expanding the services they offer."
AT&T (NYSE: T) Putnam notes, gained control of Cingular Wireless due to its merger with Bellsouth. The renamed AT&T Wireless, he says, will account for about 35% of AT&T's revenues.
The advisor observes, "In addition to a strong wireless presence, AT&T is rolling out fiber-based landline services. With revenues expected to be north of $120 billion in 2007 and substantial operating cash flow, AT&T is a force to be reckoned with." Further, he notes, the dividend was just raised for the 22nd consecutive year, and the company is expected to repurchase roughly $7 billion worth of stock in 2007.
BT Group (NYSE: BT), via its British Telecommunications unit, is the UK's largest provider. Putnam notes that while expanding its broadband and wireless capabilities at home, management is seeking to enlarge operations worldwide.
He explains, "Just recently, BT announced plans to acquire Latin America's Comsat International. Acquisitions and joint ventures, he believes, will play an important role in BT's future growth.
Deutsche Telekom (NYSE: DT) is Germany's largest telecom provider and one of the largest players in the industry worldwide. Putnam says, "The company's T-mobile unit that provides wireless services in the U.S. is an important source of growth to offset the deteriorating landline business in Germany."
He also notes that a new CEO appointed last November is seeking to revitalize the firm's landline business while also looking for new opportunities to expand internationally.
France Telecom (NYSE: FTE), Putnam observes, is a former state-owned telecom giant. He says, "FTE offers a balanced portfolio of wireless and landline products and services principally in France."
Backed by strong cash flows, he notes that the company has "embarked upon a three-year initiative" to enhance its competitive position throughout Europe.
Nippon Telegraph & Telephone (NYSE: NTT), Putnam explains, was privatized in 1985, and remains the largest telecom company in Japan. In addition to landline operations, he notes, the firm offers mobile and data services through its NTT DoCoMo mobile and NTT Data units, respectively.
Putnam says, "While NTT faces increasing competition in its local markets, nonetheless, the company has the resources to be a formidable player around the globe."
Domestically, the advisor looks to "Qwest Communications International (NYSE: Q), which he points out is the product of the 2000 merger of Qwest and U.S. West.
Putnam states, "Qwest is arguably in a tougher competitive position relative to its peers as it is generally more reliant on traditional land lines." However, he continues, "As the smallest remaining 'Baby Bell,' Qwest could be an acquisition target."
Finally, Putnam looks at Verizon Communications (NYSE: VZ) which was formed via the 2000 merger between Bell Atlantic and GTE. Verizon, he adds, subsequently purchased MCI in January 2006. Wireless operations are provided through its 55% joint venture with Vodafone.
The advisor explains, "Verizon is aggressively rolling out fiber connections with plans to reach 17 million homes by 2010. As the roll out progresses, Verizon could emerge as the leader in the quest to offer the 'triple play' – voice, video and data."
His assessment: "Despite Verizon's potential, the stock has languished for several years. But with a yield over 4%, the stock is an attractive choice for conservative investors."
For more stock picks from the leading financial newsletter advisors, visit Steven Halpern's free daily website, TheStockAdvisors.com.
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