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No Longer Bell of the Ball – Unplugged
FRIDAY AFTERNOON, THE FEDERAL Communications Commission unanimously approved AT&T’s $86 billion acquisition of BellSouth. The combined company, based in San Antonio, will provide retail phone service to customers in 22 states, own the largest U.S. cellular company, Cingular Wireless, and become one of the biggest providers of telecommunications services to business. – But make no mistake. While this and other deals go a long way toward reconstituting Ma Bell’s historic empire, the new company won’t be anything like the juggernaut of old. The world has changed in myriad ways since the U.S. Department of Justice broke up AT&T in 1982. New technologies — and new competitors — have rendered Ma one of many telecom providers fighting for a piece of the action, instead of the only Bell at the ball. – Where size once equaled might, greater heft will do nothing today to invigorate AT&T/BellSouth’s stagnant revenue. Nor will it insulate the company from cable competitors that are ramping up to deliver a triple play of voice, video and Internet service, stealing customers and depressing prices along the way.
Size also won’t do much to solve the problems AT&T (ticker: T) is rumored to be having with Project Lightspeed, its plan to use a combination of fiber and copper wires to deliver video to customers’ homes. If the talk is true, AT&T CEO Edward E. Whitacre Jr., 65, is likely to address it sometime between the close of the BellSouth acquisition and the expiration of his contract in March 2008. Alternatives to Lightspeed might involve the purchase of a satellite company or the rollout of optical fiber directly to homes, as Verizon Communications (VZ) has done. But both options are costly…..
Still Growing – Emerging and Converging
A PIONEER IN EMERGING-MARKETS INVESTING, Divecha oversees more than $20 billion in three funds dedicated to the stocks of developing countries for Boston-based Grantham, Mayo, Van Otterloo. Taking advantage of compelling valuations and ever mindful of conditions that stand to benefit certain countries and the companies that operate within them has allowed Divecha to deliver superior performance. The 31.56% on average that he’s steered the flagship GMO Emerging Markets Fund to in each of the past five years has handily beat the benchmark MSCI Emerging Markets Free Index. And he still sees plenty of opportunity.
Barron’s: What’s the outlook for emerging markets? Can they keep up this performance?
Divecha: What has surprised me has been how robust the economic performance of all these markets has been. The markets have gone up, but the fundamentals have also improved quite dramatically. Five years ago, emerging markets were trading at around nine times earnings. From then on, they’ve gone up about 250%, and today they are trading at 13 times earnings. If the gains were all because of multiple expansion, they would trade at 25 or 30 times earnings. The fact they are only at 13 times earnings tells you how much the fundamentals have improved. At 13 times earnings, it is hard to say that the emerging markets are a screaming buy. But relative to other equities, they certainly are cheaper. They are cheaper than the U.S. They are cheaper than the developed markets. A lot of the growth in emerging markets has been led by domestic demand, which in turn has been led by lower interest rates…..
WHEN MICROSOFT STARTS SELLING CONSUMERS the Vista version of Windows at the end of the month, the software giant can look forward to a good cycle of upgrade sales. That’s why the Redmond, Wash., firm’s shares rose 14% last year and outgunned the typical Nasdaq stock.
Last year, memory-chip press agents told me Vista would spark a surge in demand for DRAM , the power-hungry memory chips that are a device’s scratchpad. The flacks told the truth. Vista uses more memory than its predecessor, Windows XP.
But the Vista memory boost has already happened, ahead of Microsoft’s release of the new software product. Since last summer, personal computer makers have urged personal-computer buyers to get Vista-ready amounts of DRAM when purchasing, increasing average DRAM per PC to one gigabyte (enough to hold over a billion pieces of data, which is plenty enough to run Vista). That anticipation spurred a hot summer run in DRAM sales, as well as stock prices, for makers like Micron Technology (Ticker: MU), Qimonda (QI), Samsung Electronics (Korea 005930), Hynix Semiconductor (Korea 000660), Elpida Memory (Tokyo 6665) Nanya Technology (Taiwan 2408), ProMOS (Taiwan 5387) and Powerchip Semiconductor (Taiwan 5346)….
The Newest Kids in Town – Sizing Up Exchange-Traded Notes
INVESTORS SEEKING A PASSAGE to India might want to consider a new exchange-traded note that tracks a key stock-market index in that emerging land.
The investment vehicle, called the iPath MSCI India Index Exchange-Traded Note, debuted late last month. Traded on the New York Stock Exchange (ticker: INP), it’s based on the Morgan Stanley Capital International India Total Return index, which includes the 68 largest companies, judged by market capitalization, listed on the National Stock Exchange of India. It’s off to a strong start, with a total return through last Wednesday of 6.79%, according to Morningstar.
The India ETN is the fourth exchange-traded note introduced by Barclays Capital, and it’s the first to be linked to an emerging market. Barclays, the parent of the iShares family of exchange-traded stock-index funds, plans to introduce several additional ETNs this year.
Exchange-traded notes are similar to their cousins, exchanged-traded funds: Both track indexes and both trade on stock exchanges. But ETNs also have bond-like characteristics, because they reflect the risks of their issuer’s credit. They are senior unsecured debt securities with 30-year maturities issued by Barclays Bank….
WisdomTree Thinks It Has a Better Idea
U.S. EXCHANGE-TRADED FUNDS HAVE CLOSE TO $400 billion in assets. So the $1.5 billion that WisdomTree, a fledgling venture launched in 2006, has under management in 30 funds is a mere drop in the bucket.
But WisdomTree, based in New York, has more firepower and marketing muscle than most start-up firms. It has launched an aggressive advertising and public-relations campaign, and its management roster features some big names, who are featured prominently in those advertisements.
Its chairman is Michael Steinhardt, a pioneering and extremely successful hedge-fund manager. Its senior investment strategy adviser is Jeremy Siegel, the Wharton professor whose books include Stocks for the Long Run.
Beyond all of that, WisdomTree is trying to position itself as the ETF player with the better mousetrap — namely using fundamentals, rather than stock-market value, to construct indexes…..
