Top picks 2013: China Mobile

Investing screens based on Buffett, Lynch and O'Shaughnessy all like this telecom.

By TheStockAdvisors Jan 5, 2013 2:19PM
Global communication Maciej Frolow Brand X Getty ImagesBy John Reese, Validea Hot List Newsletter

China Mobile Ltd. (CHL) is my higher-risk pick for 2013; this Hong Kong-based mobile telecom giant ($234 billion market cap) has a customer base of more than 700 million, and has raked in more than $87 billion in sales in the past 12 months.

And my Warren Buffett-inspired Guru Strategy, my Peter Lynch-inspired model and my James O'Shaughnessy-based value model all like this stock.

I think its shares are a bit higher-risk because of China's slowdown (though there are signs that is starting to reverse), and because, while China has moved increasingly toward a free market system, its Communist government is still a wild card that should be taken into account.

That being said, there's much to like about China Mobile.

My Buffett-model likes that the firm has upped earnings per share in each year of the past decade, and that it has more than four times as much annual earnings ($20.4 billion) as it does long-term debt ($4.6 billion). It also likes China Mobile's stellar 21.4% 10-year average return on equity.

My Peter Lynch-model sees CHL as a "slow-grower" because of its long-term 9.3% EPS growth rate (based on the average of the three-, four-, and five-year EPS growth rates).

Slow-growers are primarily attractive to this model for their dividend yields, and China Mobile is offering a good one -- about 3.8%.

It also has a yield-adjusted price-to-earnings-to-growth ratio of 0.88, which comes in under the 1.0 threshold my Lynch-inspired model uses. That's a sign the stock is a bargain.

Finally, my James O'Shaughnessy-based value model is also high on CHL. When looking for value plays, O'Shaughnessy targeted large firms with strong cash flows and high dividend yields.

China Mobile is plenty big enough, and its $8.95 in cash flow per share and that solid 3.8% yield also make the grade.

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1Comment
Jan 6, 2013 1:24PM
avatar

China Mobile was good play in the past, profits to boot...

But the Chinese Government, started leveling the playing by I think subsidizing others...?

And competition became more fierce for CHL....Was good time to leave and run elsewhere.

 

Maybe now is a time to revisit and look at them going forward again??

My petname was Chili-Tel..

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