Vivian Lewis: BCE (BCE)
Global expert Vivian Lewis, in Global Investing, explains, "BCE (NYSE: BCE), with its 6% yield, is a great buy. The Canada-based telecom company is a 'fallen angel'."
"I'm worried about the speculative coloration of the rise in stock prices globally since the bottom in March 2009. I do not think the markets will continue rising as they have since then, in a straight line to the upper right-hand corner of the page.
"I expect a serious correction because the global economy is still mired in difficulty. There will be more bad news taking share prices down in the coming year.
"To find stocks with ballast for the sell-off I expect in 2010, I am focusing on dividend payers and fallen angels. Fallen angels have risen less sharply than companies without damaged reputations, and pay out more.
"A year after crash of BCE, the Canada telco supposed to have been taken private by Ontario Teachers Pension Plan and US partners, who pulled out, the former Bell Canada is a good buy.
"The deal collapsed in the financial crisis. BCE CEO George Cope valiantly then cut 2500 jobs; did a wireless deal with Telus and bought out the remaining half of Virgin Mobile Canada; bought electronics store chain The Source; and boosted BCE dividends.
"BCE stock has risen 30% this year in loonies (C$s) and nearly 50% in US dollars. (It trades as BCE both in Toronto and on the NYSE.) But it is still a third cheaper than the former deal price target. That reflects investors' bad memories. Most analysts rate it neutral despite their expecting it to rise to $29.50.
"Further hurting BCE was the decision on Dec. 11 by Canadian regulators to allow Globalive to offer cellular phone service throughout Canada, reversing an earlier bar on the company part-owned by Orascom of Egypt.
"While the 2009 Xmas telephone market will not see many offers from Globalive, next year there will be cellphone price cuts. This could hurt BCE's gross margins, which are at an astonishing 74%.
"However, other telcos without BCE's land-line and multiple cellular options will be hurt more. I consider the stock a great buy yielding 6% with a probability the dividend will be raised."
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