Vodafone Group (VOD): An Overlooked Telecom Giant

We feel that Vodafone Group PLC (NASDAQ:VOD) is an overlooked mobile communications company, and for no particularly good reason. Weakness in Europe, namely Italy and Spain, has pushed the stock down 12% during the last three months.

Vodafone is among the top income investments in its industry, and continues to reward shareholders with regular dividends. Vodafone is also due to receive a dividend of $8.5 billion from Verizon Wireless, which it plans to use for share repurchases. The company calls billionaire Ken Fisher – founder of Fisher Asset Management – one of its biggest shareholders after adding the telecom to his portfolio in 3Q (check out Ken Fisher’s newest picks).

Vodafone has admittedly seen weakness in its European markets, but does have strong penetration in emerging markets. Vodafone also appears to be way ahead of major European peers in terms of upgrading to 3G. The telecom is already focusing on 4G expansion in South Africa and certain European countries, including Germany and Italy.

It appears that Vodafone has room to grow in the smartphone market, where only 50% of its current customer base is made up of smartphone users. Vodafone’s 6% dividend yield has held up nicely through the weakness thanks to its cash position – over $7 billion on hand – and strides to increase liquidity and fix its balance sheet, with the exit of all minority holdings like China Mobile and Softbank. From a valuation standpoint, Vodafone’s 10x forward earnings multiple is well below its peers, as both AT&T and Verizon trade well above 40x earnings.

Sprint Nextel Corporation (NYSE:S) is the third largest wireless provider in the U.S. and is seeing positive growth, where revenues are expected to be up 4% this year. We believe that Sprint now has key potential to increase its LTE and 4G buildout with the investment from Softbank – $20 billion for 70% ownership – and the pending acquisition of Clearwire. Part of the $20 billion is expected to be used for acquisitions that will allow Sprint to further expand its spectrum capabilities. Billionaire David Einhorn of Greenlight Capital was one of Sprint’s big-name investors last quarter with over 26 million shares (see David Einhorn’s newest picks).

Who’s the best of the rest?