by Charles Sizemore | February 23, 2012 12:07 pm
We have new developments in the Turkcell (NYSE:TKC) saga.
Readers will recall that Turkcell is a long-time holding of the Sizemore Investment Letter and that the company is my pick in InvestorPlace’s Ten Best Stocks for 2012 contest.
Of the 10 professional investors in the contest, I’m currently in fifth place with a year-to-date gain of 17%. InvestorPlace Editor Jeff Reeves, with his choice of Alcoa (NYSE:AA), is ahead of me at 20%, as is financial writer/serial entrepreneur James Altucher and his choice of Microsoft (NASDAQ:MSFT) — a long-time recommendation on the Sizemore Investment Letter’s “Drip and Forget” portfolio. As we still are barely two months into the year, this should prove to be an exciting contest.
My investment thesis for Turkcell was straightforward. When investor risk appetites evaporated in 2011, emerging-market stocks in general (and Turkish stocks in particular) got hit hard. In addition to being a volatile emerging market in its own right, Turkey had the misfortune of being sandwiched between debt-ravaged Europe to its north and the Arab Spring to its south. It should come as little surprise that Turkey fared poorly last year, but as investor risk appetites return, I expect to see Turkey do extraordinarily well in 2012.
In Turkcell, we had an additional wrinkle. Because of a power struggle for control of the company between Turkey’s richest man and a group of Russian and Norwegian investors to whom he allegedly owes $1.4 billion, the board of directors has been paralyzed and the company missed its last dividend payment.
To clarify, the company did not officially cut or eliminate its dividend — but because of the board’s infighting, it never got declared or paid. Markets hate uncertainty, and Turkcell’s ownership situation is anything if not uncertain.
And herein lies the opportunity. When the legal drama is finally settled and the dividend payment is resumed, investors who have been avoiding the stock will have the green light they need to pile in. Turkcell is one of the finest emerging-market telecom firms in the world, and the board issue has been a monumental distraction. When that haze is finally lifted, I would expect Turkcell to jump 10% to 15% within the day and as much as 50% over the course of the year.
That day might finally be coming close. A British Virgin Islands court ruled in December that Cukurova, the holding company owned by Mehmet Karamehmet, Turkey’s richest man, had to deposit $1.4 billion in an escrow account by March to comply with the prior court order. Failure to comply will effectively give control of the company to the rival investor group.
We can only wait and see what Karamehmet does, and either way he still has an appeal pending with Britain’s Privy Council. But regardless, this story will be drawing to a close soon, and when it does, I expect to see Turkcell’s new board quickly resume the dividend.
Charles Lewis Sizemore, CFA, is the editor of the Sizemore Investment Letter, and the chief investment officer of investments firm Sizemore Capital Management. As of this writing, he did not hold a position in any of the aforementioned securities. Sign up for a FREE copy of his new special report: “4 Dividend Stocks to Buy and Forget.”
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