John Christy, editor of Forbes International Investment Report, recommends buying shares of the world's largest supplier of telecommunications equipment, LM Ericsson Telephone.
Four weeks ago, the Swedish company reported net income of $862 million for the quarter ended March 31, 2007, up 27% from the quarter a year before. Revenue grew 7.6% to $6.27 billion. Results were slightly below analysts' forecasts.
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In the past year, LM Ericsson
Christy likes LM Ericsson since operating results are fairly impressive, but the stock has been a laggard.
"The short term hasn't been great, but it's a very compelling long-term story," says Christy. “Last week at their investor presentation, CEO Carl-Henric Svanberg laid out forecasts for a 10-fold surge in global mobile telecom traffic by 2012, as video, data, Internet and all sorts of broadband access becomes increasingly popular.
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"Phones aren't just ‘phones' anymore, and telecom companies will need to make massive investments in their networks to accommodate all of this traffic. Ericsson is ideally positioned as the global leader in this sort of equipment," says Christy.
Another factor that boosts LM Ericsson in Christy's eyes is its substantial exposure to emerging markets, which are also avid consumers of wireless services. "Some are rolling out services for the first time; others are upgrading to the next generation," says Christy. "Wherever they fall on the spectrum, ERIC has equipment to sell them."
Another bright spot is Sony Ericsson, the handset joint venture with Sony, which makes Walkman phones. "These aren't as widespread in the U.S., but have been extremely popular in Europe and elsewhere overseas," says Christy. “The joint venture's profit more than doubled in the first quarter on nearly 50% sales growth."
Christy says that he doesn't think that LM Ericsson's current valuation fully values the long-term opportunity. "ERIC will have no shortage of new business in years to come, and as that starts to kick in, sentiment will no doubt improve, giving us plenty of upside," he says.
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