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America Movil Offers A Rare Value Opportunity In The Telecom Space
From Stephen Mauzy: Carlos Slim of Mexico is the fourth-richest person gracing the third stone from the sun. His $50 billion estimated (by Forbes) net worth trails only the respective net worths of Bill Gates, Amancio Ortego, and Warren Buffett.
I suppose you could call Carlos Slim the “Warren Buffett” of Mexico (though I assume he’d prefer a less cliche moniker, but you get the point). The extent and array of Slim’s holdings are similar in magnitude and diversity to Berkshire Hathaway’s (NYSE:BRK.B).
Slim’s eye for value and execution of investment strategy also rivals that of Berkshire’s famous chairman and CEO. You could argue that Slim’s eye for value even exceeds Buffett’s. Slim’s holdings account for 40% of the listings on the Mexican Bolsa; his net worth is equivalent to about 6% of Mexico’s gross domestic product.
I care not so much about owning the Slim empire in whole as I do about holding a part. My target is one of the largest parts, and one of Slim’s largest holdings. I refer to America Movil (NYSE:AMX), the largest telecom provider in Latin America.
South of the border, America Movil ranks first in wireless, fixed-line, broadband, and pay-TV service. In the United States, America Movil’s presence is felt through its prepaid Tracfone service, the top prepaid wireless service in the country.
So, why America Movil over a large U.S. counterpart like AT&T (NYSE:T), Verizon (NYSE:VZ), or Sprint (NYSE:S)? Growth: lack of it up here, opportunities for it down there.
Organic telecom growth is extinct in the United States. America Movil’s markets, being less developed, offer more opportunity to expand the franchise without cannibalizing the competition.
Wireless data, which has grown to account for a third of America Movil’s annual revenue, remains an especially fertile field.
In 2015, America Movil achieved 10% year-over-year growth in wireless data. Pay television, a relatively new business for America Movil, holds additional promise. Pay television grew to 8% of annual revenue last year. Over 2016, pay television has grown to 10% of total revenue.
Growth and girth are meaningless without strength. America Movil packs strength. It commands one of the highest credit ratings among the major western telecoms: Moody’s, Standard & Poor’s, and Fitch all rate America Movil’s debt above AT&T’s and Verizon’s debt.
America Movil Shares: Great Buy Now
So, we have a financially strong, growth-oriented company. Why, then, are America Movil shares flat over the past year?
A number of issues weigh on the price of America Movil shares. Most are transient. This means they offer investors an exceptional buying opportunity.
The Mexican government is one issue. Over the past few years, the government has worked to open Mexico’s telecom market to competition. That said, America Movil still controls 66% of the Mexico’s market.
U.S. presidential grandstanding over the North American Free Trade Agreement (NAFTA) is another issue. President Trump has called NAFTA “the worst trade deal ever.” Trump would like to cancel the agreement and impose tariffs on Mexican goods and services.
The Mexican peso further weighs on sentiment and the price of America Movil shares. Forty-one percent of America Movil’s long-term debt is priced in dollars, so they must be serviced in dollars. America Movil shares trade on the NYSE as American depositary shares (ADS). The shares in Mexico can perform swimmingly on the Mexican Bolsa, but currency translation can sink them on other exchanges. The peso has lost 20% of its value against the dollar over the past year.
But relief is on the way.
Mexico’s telecom regulators recently agreed to extend the validity of Telmex’s (an America Movil subsidiary) concession to build, install, maintain, operate, and exploit a public telephone network. The extension lasts for 40 years.
I expect 2017 to see a recovery in both Mexican shares and the Mexican peso. More investors will see the reality of a Trump presidency as opposed to the perception of that presidency. More already are. Mexico’s Bolsa is up 4.5% year to date; the peso is up 7% against the dollar since mid-January.
For now, America Movil’s low share price allows investors to exploit the perception. The last time America Movil shares were priced this low, investors had the opportunity to buy in and double their money in less than two years.
And while we wait for reality to take hold and for money to double, America Movil compensates investors with a 2.2% dividend yield.
America Movil SAB de CV (ADR) (NYSE:AMX) was trading at $12.95 per share on Wednesday afternoon, down $0.04 (-0.31%). Year-to-date, AMX has gained 3.02%, versus a 4.96% rise in the benchmark S&P 500 index during the same period.
This article is brought to you courtesy of Wyatt Investment Research.
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