Across the Bosphorus for some Rigó Janci, Turkish Delight! , and maybe a little Blackberries for the side.

While the market digests Fannie Mae and Freddie Mac, I decided to do a little shopping yesterday. Nokia has popped up on my value screen over and over again, but with the iPhone 3G launch yesterday, I decided to stay on the side instead and let the marketing engine hype of Apple take over. I still need to play around with some of the N-series phones to see how they stack up.

Almost half of the Ten Grand Chicago portfolio consists of “discretionary” stocks (NutriSystem, Harley Davidson, and Herman Miller) and almost all US based companies, it was time to diversify things a bit while also picking up some good quality companies.

I’m not talking about the BRIC’s which get more than their fair share of the market press, but the Eastern European plays in Turkey and Hungary, and one play up in the Great White North (Canada).

Buy number 1: TurkCell Iletisim Hizmetleri A.S.(TKC) Turkcell first came on to my valuation screen a few weeks ago. Running with a P/E of 8.16, and a return on assets of 20.97%, the company looked interesting. Digging a little deeper reveals Turkcell commanding a 57% market share of the cell phone subscriber market, growing 45% in subscriber growth from the same period last year. Operating margins run at an impressive 28% (ttm) [1]. What pushed me over into the “buy” side was that the population demographics lean heavily towards Gen Y and Millenials. I had the opportunity of visiting Turkey two years ago and was very fortunate to visit Leo Burnett’s local office for a presentation where I learned half the population is below 30 years of age. This age group presents a stable forward looking revenue stream in the cell phone service market for many years to come. It also doesn’t hurt that landlines across Europe are being dropped in favor of cell phones [3].

Buy number 2: Magyar Telekom PLC. (MTA) Next up is a Magyar Telekom, a telecommunication service provider based in Hungary. They offer mobile, fixed line, and IT services for corporate clients in Hungary. The valuation metrics are not as favorable as TurkCell, with a P/E of 11.73, and a return on assets of 7.08%. Operating margins are nice at 19.8%. Besides these metrics, the company paid a nice dividend for 2007 at $2.37/share [4]. If trends continue, this results in a 9% yield at today’s share price. Holding this company gives me an excuse to understand the telecommunication services market in Hungary, Montenegro, and Macedonia :)

Buy number 3: Research in Motion (RIMM) Finally, I decided to pick up Research in Motion, It’s no secret that Apple simply wants to kick them in the groin as they open up the iPhone to software developers and Microsoft Exchange compatibility. For those who don’t really understand this move, it is like having hundreds of thousands of programmers available to you to write phone applications as opposed to a few hundred. So why RIMM? I’ve been using a Blackberry for over 5 years now and this thing is my bread/butter for office email connectivity. I’ve dropped these things on the parking lot floor with such furious force hoping it would break out of spite of being collared to my day job.

Besides that, I was impressed with the company’s expansive growth last year and decided to do a full cash flow analysis on the company. Updating my analysis and tracking the next 3 year forecast at 25% year over year revenue growth, trailing down in step wise fashion to 15% and then 5% thereafter puts them at a valuation range of:

The company does have a very high valuation with P/E of 40.56. However, this is still a growth story. They command exceptional operating margins close to 30% that will help them deflect some of the economic weakness and should set them up nicely when things turn around. As much as Apple, Nokia, and Research in Motion want to eat each other’s lunch, there is still room for all of them.

Homework time:
I got my work cut out now… the queue for publishing my full detailed analysis now looks like this:

• Herman Miller
• Harley Davidson
• Intevac
• TurkCell Iletisim Hizmetleri
• Magyar Telekom
• Research in Motion

Enjoy Monday’s Fannie Mae and Freddie Mac fireworks, while I continue to plug away at these companies.

Disclosure: I own RIMM, MTA, and TKC

References:

1. TurkCell 2008 Q1 Presentation
2. CIA World Fact Book (Turkey)
3. Europeans Ditching Landlines for Mobile. Vucheva, Elitsa. June.30.2009.
4.Dividend Policy, Magyar Telekcom