2011 Emerging Market Telecom Ups and Downs

by Charles Sizemore | January 5, 2012 1:44 pm

In a year that wasn’t kind to emerging markets, China Mobile (NYSE:CHL[1]) has done remarkably well since I recommended it in June — up around a modest 7%. But considering that many emerging markets are down around 20% since June — based on figures from the iShares MSCI Emerging Markets Index (ETF) (NYSE:EEM[2]) and the Vanguard MSCI Emerging Markets ETF (NYSE:VWO[3]) — I see no cause for complaint.

My other notable mobile telecom provider, Turkcell (NYSE:TKC[4]) is a different story. Turkcell ended 2011 down 31.35%. This was enough to erase my prior gains and leave me with a loss of 12% since I first recommended the stock in May of 2010.

It stings to watch gains evaporate like that. But I encourage investors to give this stock a little more time. The company got hit by a perfect storm in 2011, one that I did not fully appreciate until it was too late.

Wedged between Europe and the Middle East, Turkey shares borders with the two crisis regions of 2011. With a banking crisis on one side and the Arab Spring on the other, you can’t blame investors for getting nervous and bailing on the country. A surge in inflation certainly didn’t help either. And in the case of Turkcell, a power struggle on the board of directors that resembled something out of a soap opera caused the company to delay its dividend payment for the year.

Nevertheless, I continue to love Turkcell’s fundamentals. The company is the dominant mobile provider in Turkey, one of the most promising emerging markets, and has a dominant position is several other countries in the region. Turkcell is also consistently ranked as one of the best-managed companies in Europe — something that would have certainly made Ataturk, the Western-leaning founder of the country, proud.

I see investors returning to emerging markets in 2012 and to Turkey in particular. I also see Turkcell’s board drama getting resolved in the first quarter and the dividend being reinstated. I have enough faith in Turkcell to make it my choice in the InvestorPlace “10 Best Stocks for 2012[5]” contest.

Lastly, the one stock I was most disappointed with in 2011 was Cellcom Israel (NYSE:CEL[6]), which ended the year down 48%. As with Turkcell, part of the problem was geography. Israeli stocks have done poorly ever since the Arab Spring broke out. Escalating tensions with Iran didn’t help much either. In investors’ minds, it doesn’t matter how great your cellular service is if Iranian bombs  the country.

Not all of the blame can be put on geography, however. Cellcom is facing a stricter regulatory environment at home and tougher competition from other carriers. Still, at less than 6 times earnings and 0.93 times sales, it’s hard to see a lot of downside in this stock.

Endnotes:
  1. CHL: http://studio-5.financialcontent.com/investplace/quote?Symbol=CHL
  2. EEM: http://studio-5.financialcontent.com/investplace/quote?Symbol=EEM
  3. VWO: http://studio-5.financialcontent.com/investplace/quote?Symbol=VWO
  4. TKC: http://studio-5.financialcontent.com/investplace/quote?Symbol=TKC
  5. 10 Best Stocks for 2012: http://investorplace.com/best-stocks-for-2012/
  6. CEL: http://studio-5.financialcontent.com/investplace/quote?Symbol=CEL

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