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Telecom Stocks: Europe's Slowdown Defense

Friday, 31 Oct 2008 | 9:34 AM ET

Telecom companies such as KPN and Telefonica are well positioned going into the economic slowdown, Michael Kovacocy, European telecoms analyst and sector strategist from Daiwa Institute of Research Europe, told CNBC.

France Telecom Holds Guidance
France Telecom reported a slight rise in third-quarter revenue Thursday and stuck to its full-year guidance. Michael Kovacocy from Daiwa Institute of Research Europe.

"Telefonica probably has the most upside right now … it's an incredible value. We think that it's now worth upwards of 20 euros a share and we think it’s a long term growth play," Kovacocy told CNBC.

Shares of the Spanish telecom giant closed little above 14 euros per share Thursday, nearly 6 euros below Kovacocy's target price.

Investors should ignore the noise in the market place and be willing to take on risk in the short term, Kovacocy warned.

The telecom sector will prove very resilient to the economic slowdown now apparent across much of the developed world, Kovacocy said.

"Going into this period of turmoil telecoms were in fantastic shape," he said.

The bursting of the telecom bubble in early 2000 prompted the established players to retrench and they have "really made themselves quite solid," Kovacocy said.

Integrated operators with both fixed-line and mobile products are best poised to benefit and have "a perfectly resilient business model," Kovacocy said.

Alternative telecom providers should be avoided as their growth phase has already played out, he said. Mobile has its own "peculiar problems" and would have been slowing regardless of the economic conditions, he added.

Disclosures:

Disclosure information was not available for Kovacocy or for his company.

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