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Why China Mobile Ltd. Shares Could Soar 20%

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of China Mobile  (NYSE: CHL  ) rallied 2% on Monday morning after Bank of America/Merrill Lynch upgraded the Chinese telecom giant from neutral to buy.

So what: Along with the upgrade, analyst Sydney Zhang boosted his price target to HK$95 (from HK$78), representing about 21% worth of upside to Friday's close. So while momentum traders might be turned off by China Mobile's year-to-date price sluggishness, Zhang's call could reflect a sense on Wall Street that its growth prospects are becoming too cheap to pass up.

Now what: B of A cited three reasons for the upgrade: "(1) [W]e expect CM to significantly improve its FY14-15 NP helped by SASAC's requirement. ... (2) we believe concerns on potential loss of competitiveness from tower sharing are exaggerated, instead CM could realize large gain from tower monetization; and (3) we expect Co's 4G net adds and EBITDA margin to improve in 2H14 while ARPU & ROIC to bottom in FY15e." When you couple that upbeat outlook with China Mobile's near 4% dividend yield, it's tough to disagree with B of A's upgrade. 

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  • Report this Comment On July 14, 2014, at 12:12 PM, Decoy0527 wrote:

    I think the 3 China Telecom's (all SOE's) are the new "widows and orphans" stock for next 10 years. Solid and steady, with moderate dividend, and relatively low risk.

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Brian Pacampara

I take a look at big 10% moves, as well as stock-shaking analyst calls, on a daily basis for The Fool. While I don't believe in active trading, closely monitoring Mr. Market's mood swings can help identify long-term opportunities.

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9/2/2015 4:02 PM
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