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5-Star Stocks Poised to Pop: Telefonica

Based on the aggregated intelligence of 170,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, Spanish telecom giant Telefonica (NYSE: TEF  ) has earned a coveted five-star ranking.

With that in mind, let's take a closer look at Telefonica's business and see what CAPS investors are saying about the stock right now.

Telefonica facts

Headquarters (founded) Madrid (1924)
Market Cap $120.4 billion
Industry Integrated telecommunication services
Trailing-12-Month Revenue $81.8 billion

CEO Cesar Izuel (since 2000)

CFO Santiago Valbuena (since 2002)

Return on Equity (average, past 3 years) 45.2%
Cash/Debt $11.97 billion / $84.65 billion
Dividend Yield 6.1%

Vodafone Group (Nasdaq: VOD  )

America Movil (NYSE: AMX  )

France Telecom (NYSE: FTE  )

Sources: Capital IQ (a division of Standard & Poor's) and Motley Fool CAPS.

On CAPS, 96% of the 544 members who have rated Telefonica believe the stock will outperform the S&P 500 going forward. These bulls include ner25 and All-Star TMFDeej, who is ranked in the top 1% of our community.

This past summer, ner25 likened Telefonica to another Madrid-based bargain opportunity: "Similar play to Banco Santander (NYSE: STD  ) , a Spanish stock trading cheaply because of Spanish economy fears, but with most of its business in other parts of Europe and South America."

While Telefonica's shares have rebounded nicely over the past four months, our community thinks they're still worth paying for. In fact, Telefonica's three-year average return on equity (45%) tops that of European rivals Vodafone (7.6%) and France Telecom (14%), its fiercest Latin American foe America Movil (41%), and even U.S.-based counterparts Verizon (NYSE: VZ  ) (8.4%) and AT&T (NYSE: T  ) (14.4%). With the Spanish market accounting for just 35% of Telefonica's business, CAPS All-Star TMFDeej thinks the company is in far better shape than many investors realize:

Yes, the Spanish economy is a mess. The official unemployment rate there of 20% makes the 10% that we're experiencing here in the United States today look like a utopia. ...

Since Spain is such a mess, why would I want to buy stock in a company from there? Even though [Telefonica] is a Spanish company, it derives nearly two-thirds of its revenue from outside of the country. A huge chunk of that comes from its rapidly growing operations in Latin America. ...

Cheap companies that pay dividends always catch my eye. Telefonica has both of these attributes.

What do you think about Telefonica, or any other stock for that matter? If you want to retire rich, you need to put together the best portfolio you can. Owning exceptional stocks is a surefire way to secure your financial future, and on Motley Fool CAPS, thousands of investors are working every day to find them. CAPS is 100% free, so get started!

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. France Telecom is a Motley Fool Income Investor pick. The Fool owns shares of Telefonica. Try any of our Foolish newsletter services free for 30 days.

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Fool's disclosure policy always gets a perfect score.

Read/Post Comments (2) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 27, 2010, at 10:38 AM, spokanimal wrote:

    TEF was a good buy in the $50s when the PIIIGS were talking default but now that the debt crisis is easing and TEF is pushing $80, the "herd" is back in the stock and it's time for good contrarians to begin ringing the register.

    Thanks for this "head's up", motley fool. Your "CAPS" investors are a personification of "the herd" and when they hit 5-stars, I always do well to hit the "sell" button.


  • Report this Comment On October 28, 2010, at 3:32 PM, Veritas1010 wrote:

    Well Spok, you have an insightful observation. TEF was a solid buy anywhere in the 50's, really. But, the 80's right now??? A bit premature in terms of its growth potential - and a function I think of an over bought market at the moment. That said, if you are in it for the longer term why not just collect the higher dividends across time if you were fortuitous to get in this summer or earlier.

    Sure, as a Spanish ADR we are looking at a 19% withholding tax, but you'll take that off your income tax. Again, this stock is heading back up to $100 (or beyond). Why not relax, collect and then sell at the right time. Be patient, it's coming. This stock is a "Maximus", and won't disappoint the wise investor!

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