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The economic news out of Europe has strengthened the dollar and recast doubt on the euro. The demise of the Irish "domino" after the bailout of the Greek domino has formed clouds over the Portuguese and Spanish dominoes.As fear grows, the European Bank is trying to build a buttress to hold up the dominoes. However, from the perspective of the Greek and Irish people the prescribed austerity measures employed is just foreign oppression and will not help their employment levels.
What this means to most investors is to run for the hills. What it means to this investor is watch closely for buying opportunities because bargains will be created by the fear -- for sure!
Prime on my watch list is the Spanish communications giant Telefonica SA (TEF), which I highlighted Thursday in Chasing Value: 2011 Stock Picks -- The Journey Begins and not to long ago in Chasing Value: Novartis, Telefonica, Unilever Bought on Fear and for the same reason. Although TEF is a high probability to be on 2011 list, that does not mean you have to wait for an artificial date at the end of this month.
As the news moves the market up and down and back up there are profits to be made. The following 5-year chart indicates that Telefonica was growing into the recession like everything else and then tanked with the market.
The up-and-down roller coaster ride is a result of news out of Europe and worries Spain might see harder times than its neighbors, but this company is solid and at the current price floating around $68 is a bargain. Not only would I consider buying the stock in this range, but I would also at the same time sell March $65 puts, collecting $2.85 per share today making the break-even price $62.15 (a steal) should it get put to you -- and reducing you average per share cost. Of course if the put expired you have to accept a 17% annualized return -- oh my!
More details can be found in the earlier articles, but I will leave you with a couple of important ones here -- Telefonia is paying a 6.4% yield and has a P/E of 7.06.
Update: TEF closed at $69.45.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture and planning firm. He writes the columns Chasing Value™ and Serious Money. Disclosure: He owns shares or options in TEF.
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Reader Comments (Page 1 of 1)
12-05-2010 @ 3:46PM
william lindblad said...
I dont think that the problems of Portugal and Spain are near that of Greece and Ireland, but should they prove to be, Italy will be next.
Bargains and cherry picking there will be.
Personally I think that the EU is likely to pull out the hole sooner than the U.S. They are doing the austerity and we have a different approach. Spend.