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TMFAleph1 (96.60)

Special Situation in Telecoms

Recs

5

June 06, 2010 – Comments (11) | RELATED TICKERS: FTR , BRK-B , T

In his Streetwise column in Barron's this week (Home on the Range, Barron's, Jun. 5, 2010), Michael Santoli describes an interesting special situation in the Telecoms sector: Frontier Communications (NYSE: FTR).

Alex Dumortier

 

11 Comments – Post Your Own

#1) On June 06, 2010 at 1:42 PM, awallejr (76.63) wrote:

And look what happened to FRP.

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#2) On June 06, 2010 at 1:48 PM, MegaEurope (< 20) wrote:

Santoli is excited about "a chance of at least 10% price appreciation once merger efficiencies are realized."?  I don't get out of bed for that kind of return. There are thousands of stocks with better fundamentals than this.

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#3) On June 06, 2010 at 2:36 PM, TMFAleph1 (96.60) wrote:

MegaEurope,

It sounds to me like you read the article too quckly and missed the reference to "the forward yield of about 9%". Either that, or you have wildly inflated expectations for the returns you will achieve investing in equities.

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#4) On June 06, 2010 at 2:37 PM, TMFAleph1 (96.60) wrote:

awallejr,

What did happen to FRP?

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#5) On June 06, 2010 at 3:26 PM, MegaEurope (< 20) wrote:

FRP went bankrupt.  FTR's dividend is obviously unsustainable and will be cut.  It is slowly dying like Berkshire Hathaway's textile business, only not priced as well.

Buffett has said that he could achieve 50% annual returns if he was only investing a small amount.  My personal expectations are much lower than that.

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#6) On June 06, 2010 at 3:41 PM, TMFAleph1 (96.60) wrote:

Buffett has said that he could achieve 50% annual returns if he was only investing a small amount.  My personal expectations are much lower than that.

That still leaves room for them to be wildly inflated!

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#7) On June 06, 2010 at 4:19 PM, allstarvulture (< 20) wrote:

Have to agree with MegaEurope in regards to the dividend.  Take a look at FTR as it compares to  some other small, rural providers such as WWVY and HTCO:

P/E:

FTR: 20.75

WWVY: 12.02

HTCO: 8.26

Div Yield:

FTR: 12%

HTCO: 7.4%

WWVY: 6.8%

Payout Ratios (Per Yahoo Finance)

FTR: 244%

HTCO: 61%

WWVY: 58%

P/B

FTR: 8.81

HTCO: 2.65

WWVY: 2.03

I'm disclosing right up front that I've got small long positions in both WWVY and HTCO, which is why I know about them.  And maybe FTR's acquisition of VZ's wireline could be a boon.  But it seems to me that the fundamentals are shaky for FTR going forward (check out the decline in shareholder equity) and that there may be equally attractive dividend playes in the rural wireline sector when the risk element is factored in.

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#8) On June 06, 2010 at 4:29 PM, MegaEurope (< 20) wrote:

And your point is...?  I shouldn't bother aiming for high returns?

The exact returns don't matter as long as I make the best investment decisions I can.  Trust me, my retirement plan does not depend on 20% annual returns. I'm on track to get there with less than 5%.

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#9) On June 06, 2010 at 4:42 PM, TMFAleph1 (96.60) wrote:

MegaEurope,

I apologize for being argumentative -- I was just reacting to the tone of your original comment, which I perceived as arrogant. This reaction prevented me from accepting the content of the comment with equanimity.

Congratulations on your financial position. Would that everyone were on the same track!

Best,

Alex D

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#10) On June 06, 2010 at 5:03 PM, MegaEurope (< 20) wrote:

Well, my comments were certainly argumentative too - but not coming from arrogance.  I just feel strongly that investors should focus on value, margin of error, risk-reward and proven performance, and Santoli's analysis of FTR is low quality (like the majority of analyst 'buys' of course.)

Allstarvulture, I think you have the right idea with regard to fixed line telecom - although personally my allocation is 0.  WWVY and HTCO have much less debt than FTR or WIN, seem to be reasonably sustainable, and could be takeover targets.

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#11) On June 06, 2010 at 5:43 PM, TMFAleph1 (96.60) wrote:

To be fair to Santoli, I don't think readers are meant to consider this as anything more than the outline of an embryonic idea, not a well vetted investment recommendation. That is certainly the spirit in which I passed it on, as I have no particular knowledge on Frontier Communications (although I do have some knowledge of special situations investing).

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