The telecom business is definitely not recession-proof, as those that have followed the industry have recently realized, but it is not a field that is going to fade into the horizon any time soon either. Simply put, people need to communicate and the telecom business is poised to continue rolling with the new technology and bringing people what they need. If you see the value of telecom companies and agree that their future is, perhaps not golden, but definitely strong, then an investment in an Exchange Traded Fund (ETF) is an excellent way to invest in the future of the telecom field without placing all of your trust in one specific company.
iShares S&P Global Telecommunications Sector ETF (NYSE: IXP) let's you own shares in some of the most noted and reliable telecom companies by simply purchasing shares of the one ETF. With IXP you'll find your investment basket is loaded with companies such as Amercia Movil, S.A.B. (NYSE: AMX) a fixed and wireless provider in Latin America, AT&T, Inc. (NYSE: T) a telecom provider for customers in the U.S. and worldwide, Verizon Communications (NYSE: VZ) a wireline and domestic wireless provider across the globe, as well as several other highly rated and well known telecom leaders.
iShares charges only a 0.48% fee to maintain IXP using computers rather than money managers. IXP also has typically paid about $1.50 per year in dividends -- IXP is down about (41%) this year so that's about a 4% yield -- and these companies seem to have the cash-generating ability to continue dividends.
Of the 44 stocks in IXP, the top 10 holdings total about 71% of all total assets. Take note of the global exposure you'll get by investing in the future of the telecom industry:
MOST NOTEWORTHY: ExxonMobil, Susquehanna and BJ's Wholesale were today's noteworthy upgrades:
Bernstein upgraded shares of ExxonMobil (NYSE: XOM) to Outperform from Market Perform to reflect the company's best of industry returns and high credit rating, which they feel makes for a safe investment in the current environment.
Keefe Bruyette upgraded shares of Susquehanna (NASDAQ: SUSQ) to Market Perform from Underperform on valuation and believes the company is unlikely to have to raise capital.
JP Morgan raised BJ's Wholesale (NYSE: BJ) to Overweight from Neutral citing improvement in the company's ability to convert free trial customers to paid members and strong June sales, which could result in EPS upside for Q2-Q4.
OTHER UPGRADES:
J.M. Smucker (NYSE: SJM) was lifted to Buy from Hold at Deutsche Bank.
France Telecom (NYSE: FTE) was upgraded to Overweight from Neutral at HSBC.
MOST NOTEWORTHY: Lam Research, Deutsche Telekom and France Telecom were today's noteworthy upgrades:
Credit Suisse upgraded Lam Research (NASDAQ:LRCX) to Outperform from Neutral citing margin expansion and valuation. Lam was named the firm's top pick in SCE names for 2H08.
JP Morgan upgraded shares of Deutsche Telekom (NYSE:DT) to Overweight from Neutral as they expect a stronger second half of the year for the industry.
France Telecom (NYSE:FTE) was upgraded to Buy from Neutral at Merrill and to Buy from Hold at Societe Generale after the company walked away without bidding for Sweden's TeliaSonera.
Deutsche Telekom (NYSE:DT) was upgraded to "overweight" from "neutral" at JP Morgan, according toMarketWatch. The financial news site also reports that France Telecom (NYSE:FTE) was upped to "buy" from "neutral" at Merrill Lynch.
Stifel Nicolaus & Co reiterated its "hold" rating on Campbell Soup (NYSE:CPB) ahead of the company annual meeting according to the AP.
Merrill Lynch resumed coverage of Home Depot (NYSE:HD) with an "underperform" rating, according toBriefing.com. The news service also reports that JP Morgan initiated Comcast (NASDAQ:CMCSA) with an "overweight" rating.
Douglas A. McIntyre is an editor at 247wallst.com.
Readers of this space know that the investment bias is toward large-cap companies with demonstrated business models and who have a competitive advantage in established markets, preferably with a favorable global trend as a support. But every once in a while an exception is made, and with the aforementioned in mind France Telecom is worth a review.
France Telecom SA (ADR) (NYSE: FTE) is a major telecommunications provider in France and also operates broadband, IP protocol, and audio-visual content businesses.
Analysts really like FTE's 49% market share of France's broadband market. Analysts also expect France Telecom's broadband business to offset a decline in landline telephone revenue in FY 2008.
MOST NOTEWORTHY: Host Hotels, Packeteer and France Telecom were today's noteworthy downgrades:
Deutsche Bank downgraded shares of Host Hotels (NYSE: HST) to Hold from Buy and lowered their target to $19 from $22.50 on a lack of near-term catalysts and industry headwinds. Note the firm also downgraded Sunstone Hotel Investors (NYSE: SHO), Strategic Hotels (NYSE: BEE) and DiamondRock Hospitality (NYSE: DRH) to Hold from Buy.
Merriman downgraded shares of Packeteer (NASDAQ: PKTR) to Neutral from Buy following the acquisition bid by Blue Coat Systems (NASDAQ: BCSI) as they are not expecting additional suitors to emerge.
ABN Amro cut France Telecom (NYSE: FTE) to Hold from Buy as they see increased risk from the company's acquisitions strategy.
OTHER DOWNGRADES:
Keefe Bruyette downgraded Capitol Federal (NASDAQ: CFFN) to Underperform from Market Perform.
Omnicell (NASDAQ: OMCL) was lowered to Neutral from Strong Buy at Broadpoint.
National City (NYSE: NCC) was downgraded at Bear to Underperform from Outperform.
The Wall Street Journal's "Heard on the Street" reported that VCG Special Opportunities Master Fund, a $58M asset hedge fund which is owned by an investment firm that also owns a Puerto Rican investment bank, is separately suing Citigroup Incorporated (NYSE: C) and Wachovia Corporation (NYSE: WB) for requiring it to pay money from "credit default swaps" as the value of mortgage backed bonds fell.
OTHER PAPERS:
In an attempt to cut back its growth plans due to higher fuel costs, AirTran Holdings Inc (NYSE: AAI) CEO Bob Fornaro said the Orlando-based airline will sell two jets next month. The Orlando Sentinel reported that record fuel costs could also impact AirTran's negotiations with its pilots union.
Fnac is in talks with Apple Inc (NASDAQ: AAPL) to sell the iPhone in France, Le Figaro reported. The head of PPR SA's Fnac Chain, Denis Olivennes, said France Telecom's (NYSE: FTE) exclusivity rights for the iPhone in France are "inadmissible."
WEB SITES:
Bloomberg reported that the head of Dubai International Capital, Sameer al-Ansari, said that as losses increase from the subprime mortgage market turmoil, Citigroup may need additional capital from outside investors.
The big run-up in shares in Asia did not make it over to Europe. Concerns about the global economy still appear to be too great.
At 5 AM New York time, the FTSE was off .9% to 5,688. Commodity proxy and miner BHP Billiton (NYSE: BHP) was off 3.7%, GlaxoSmithKline (NYSE: GSK) was off 2.1%, so Big Pharma did not appear to be making a comeback.
In Germany, the DAXX fell off 1.7% to 6,658. Multi-national Siemens (NYSE: SI) held its own, down only 0.4%.
In France, the CAC 40 was down .8% to 4,805. France Telecom (NYSE: FTE) sank 2.3% to 23.25. But global financial services company AXA (NYSE: AXA) rose .7%.
UBS AG (NYSE: UBS) is launching an initiative to reduce proprietary risk taking by its investment banking division, the Financial Times reported. In an internal memo, UBS CEO Marcel Rohner wrote that the bank would cut by 50% the number of its employees in its real estate and securitization division, and move its troubled mortgage investments into a separate unit.
OTHER PAPERS:
The UK Times reported that British music company EMI Group PLC (OTC: EMIPY) has made a bid for Chrysalis, one of Britain's last big independent music companies.
Student loan giant SLM Corporation (NYSE: SLM), also known as Sallie Mae, said it would lay off 350 employees, or about 3% of its workers, the Washington Post said.
Many analysts and investors tried to bury WiMAX technology a few weeks ago after Sprint Nextel (NYSE: S) decided to walk away from its WiMAX business. News today says Israeli WiMAX pioneer Alvarion (NASDAQ: ALVR) and European fixed-line giant France Telecom (NYSE: FTE) may be teaming up in a deal estimated to be worth $20 million for Alvarion.
My buddy Zack Miller had a great piece a couple of weeks back on why Israeli WiMAX companies may have a big advantage. Alvarion has created a thriving WiMAX business in emerging markets, and these markets tend to be first movers when it comes to technology like this. Let's not forget that widespread cellphone use and technological advances didn't start in the U.S. In the U.S. everyone had a fixed line that worked. In places like Israel, just to get a line from the phone company could have taken you months.
So what happened? As a way around this, cellphone technology surfaced, and now everyone has a cellphone. Same thing in other emerging markets. Who's not to say that the same thing won't happen with WiMAX? It'll catch on and get really big in emerging markets, and then will get picked up throughout the U.S.
Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. Disclosure: Writer owns stock in ALVR and is long, he has no position in any other stock mentioned as of 12/05/07.
The Wall Street Journalreported [subscription] that a prominent investment banker suggested a merger between Citigroup (NYSE: C) and Bank of America (NYSE: BAC) about a month ago. While Citi reportedly rejected the proposal, and while the Journal says that Bank of America denied ever authorizing such an approach, Wall Street seems to like the report, lifting Citi shares further. Citi shares are up 0.8% in premarket trading and BAC shares up over 1.4%.
France Telecom (NYSE: FTE) will launch Apple's (NASDAQ: AAPL) iPhone today in late-night openings at 12 of its Orange stores. The rest will open stores rom 6:30 pm onwards. It will charge between €49 ($72) and €119 a month and €399 for the iPhone itself. iPhone will be sold for €549 if customers don't wish to sign up for a plan. The cost of unlocking the handset is €100.
Marvell Technology Group Ltd (NASDAQ: MRVL) shares are plunging 8.4% in premarket trading after the chipmaker reported a narrower-than expected quarterly net loss after the close Tuesday amid higher R&D costs. The company said it planned to cut operating costs to help meet financial targets by eliminating about 400 jobs, or 7% of its workforce mainly in the United States and Israel. Excluding one-time items, Marvell reported a profit of 14 cents per share, beating the consensus forecast of a profit of 8 cents a share.
MOST NOTEWORTHY: Trident Microsystems, Comcast, Level 3 Communications, Ambac Financial and MBIA Inc were today's noteworthy downgrades:
Jefferies downgraded shares of Trident Microsystems Inc (NASDAQ: TRID) to Hold from Buy and lowered their target to $9 from $20 following the company's mixed quarter as they expect TRID to lose share in the TV market and face increasing price pressure. Shares were also downgraded to Hold from Buy at Deutsche Bank. Oppenheimer lowered Trident to Neutral from Buy, citing disappointing December guidance, delay in TV ramp, and expectations that 2008 will be a peak year for TV chip ramp revenues.
CIBC downgraded shares of Comcast Corporation (NASDAQ: CMCSA) to Sector Performer from Outperformer following the weak Q3 results to reflect increasing competition in telco video, slower broadband growth and the weakening economy.
JP Morgan downgraded Level 3 Communications Inc (NASDAQ: LVLT) to Neutral from Outperform following disappointing Q3 results and guidance.
Friedman Billings downgraded shares of Ambac Financial Group Inc (NYSE: ABK) and MBIA Inc (NYSE: MBI) to Market Perform from Outperform citing lack of near-term catalysts and uncertainty surrounding the credit markets.
News Corp.'s (NYSE: NWS) MySpace is investing heavily in games to go along with its successful music and video offerings, and beginning in January, thanks to a deal with games distributor Oberon, will offer hundreds of free "casual" games, reported the Wall Street Journal (subscription required).
The European Court of Justice in Luxembourg overturned a law that had been on the books in Germany since 1960 to prevent hostile foreign takeovers, reported the Wall Street Journal. The immediate result is expected to be a takeover attempt by Porsche, a 31% holder of Volkswagen (OTC: VLKAY) shares.
OTHER PAPERS:
Mobile Telecom company France Telecom (NYSE: FTE) is close to creating a joint venture for long distance operations in India with Indian optical storage manufacturer Moser Baer, reported the Economic Times.
British financial services company HSBC Holdings (NYSE: HBC) is looking to sell Marbles, the online credit card business it acquired in 2003, reported the Independent.
The first undersea telecommunications cable linking China and the U.S. -- called the Trans-Pacific Express -- has begun to be constructed, reports the Associated Press, and it's expected to be in place before the Beijing Olympics next July. Verizon Communications (NYSE: VZ) is involved and says the cable will be 11,000 miles long and cost about $500M.
Apple's PR machine does not know how to do anything small, so it is expected that the company will say that it will "hand a UK sale deal to Spanish Telefonica's O2 UK unit, a German deal to Deutsche Telekom's (NYSE:DT) T-Mobile and a French deal to France Telecom's (NYSE: FTE) Orange."
With the iPhone's price already dropped, sales in Europe can be expected to be strong.
The product, however, has at least two problems as it moves overseas. One is that the phone is currently a 2.5G product while Europe cellular users are, in many cases, already on 3G networks. Apple would need a short time table to get a next-generation product to market.
The other issue with the iPhone is that technology pirates have figured out how to "unlock" the device so that it can work on more than one cellular network. It is too early to say whether this will affect the exclusivity that Apple is seeking from network partners, but it at least raises the question of how easy it will be to force consumers to stay with one provider.
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