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Telecommunications Sector Review & Recommendations: Strategic Investment Insights

This presentation reviews the telecommunications sector outlook, focusing on strategic shifts towards “Defensive-Growth” stocks. Key recommendations include an overweight stance on telecoms, highlighting steady cash flows and portfolio adjustments to favor wireless industry growth—especially in emerging markets. America Movil (AMX) is currently featured, with insights into its market position and valuation analysis. We also assess other major players like Verizon (VZ), China Mobile (CHL), and NIHD, evaluating their growth potential and cyclical dynamics. The guidance aims to enhance portfolio performance with a balanced approach.

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Telecommunications Sector Review & Recommendations: Strategic Investment Insights

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  1. Telecommunications SectorStock Presentation Chad Stutz Ryan Cook Fin 724/824

  2. Review of Recommendations • Overweight Telecom • Telecoms have steady cash flows, so... • Balance SIM growth portfolio with “Defensive-Growth” stocks • Structure holdings to emphasize wireless industry • Primary focus in emerging markets • Add 156 bps to portfolio

  3. SIM PORTFOLIO • Sector Presentation earned an additional 156 basis points for the Telecommunications Sector • Currently the only stock the SIM portfolio holds in Telecommunications is America Movil

  4. AméricaMóvil, S.A.B. de C.V. (AMX) • 3rd largest wireless network operator in world • 182 mil wireless subscribers • Largest corporation in Latin America • Operates in 18 countries • Primarily Wireless Company • Fixed line operations in Central America & Caribbean • Operates in Mexico as Telcel = #1 wireless company • Operates in Brazil as Claro = #2 largest market • Operates in U.S. as TracFone = pre-paid provider

  5. Valuation Analysis: Price Multiples

  6. AMX - Target Price & Upside Sensitivity Analysis

  7. AMX Recommendation • Upside of 13.81% from DCF • Lowest DCF upside of 4 companies we reviewed • AMX is approaching maturity stage of life cycle • Evidenced by market saturation in major markets • Good company, but there are better opportunities • SELL all shares = 240 bps

  8. NII Holdings, Inc. (NIHD) • Originally organized in 1995 as a holding company for the operations of Nextel Communications, Inc. in selected international markets. • Operates in the emerging markets in Latin America. • Beta of 2.22 very cyclical stock. • Reports its results of operations in U.S. dollars, therefore changes in exchange rates can affect earnings reports.

  9. Valuation Analysis: Price Multiples

  10. NIHD - Target Price & Upside

  11. NIHD Recommendation • Upside of 50.03% from DCF • Extremely cheap price multiples • Latin American wireless • NIHD has more room to grow than AMX • Cyclical growth stock • BUY 75 bps

  12. Verizon Communications (VZ) • iPhone contract with AT&T expires in 201o, Verizon is in discussions with Apple to develop an iPhone for Verizon with the goal of introducing it next year. • 40 percent of iPhone users are new AT&T subscribers, contributing to yet another net gain in wireless customers. • Verizon can expect similar results if Apple does produce a version of the iPhone for Verizon.

  13. Valuation Analysis: Price Multiples

  14. VZ - Target Price & Upside

  15. VZ Recommendation • Upside of 20.35% from DCF • Underpriced multiples • iPhone on the horizon (4G) • Domestic defensive stock = sector diversification • BUY 50 bps

  16. China Mobile Limited (CHL) • World’s #1 mobile operator - in terms of subscribers • 415 mil wireless subscribers (2/3 of China market) • Largest company on Hong Kong Stock Exchange • 1/2 of new subscribers in 2007 from rural areas • Continued growth will be fueled by rural expansion • State-owned corporation • This year, the company will start rolling out 3G • More data plans = more revenue • iPhone?

  17. Valuation Analysis: Price Multiples

  18. CHL - Target Price & Upside Sensitivity Analysis

  19. CHL Recommendation • Upside of 64.11% from DCF • Very cheap price multiples • Defensive Growth company • Opportunities for continued growth in rural regions • 3G on the horizon • Wireless data & possible iPhone • BUY 271 bps

  20. Recommendations • AMX has low DCF valuation and is approaching maturity. Good company, but there are better ones • VZ is a defensive domestic that keeps us diversified while positioning for growth • NIHD is a cyclical growth stock that seems undervalued and has a very impressive upside • CHL is a defensive growth stock with the highest upside and potential for major growth in rural regions

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