In my perusal of the FTSE 100 in search of shares that I think are suitable for novice investors, I’ve already taken a look at ARM Holdings and decided it’s one for beginners to steer clear of.
In fact, I generally think it’s a bad idea to start with technology shares — they can be very attractive if you look at the possible gains, but they’ve lured many an inexperienced investor to early losses. But it’s not always the case, and today I’m going to tell you why I think the FTSE’s biggest telecoms company (by far) is a good one.
It’s Vodafone (LSE: VOD) (NASDAQ: VOD.US), of course, the operator of one of the UK’s first 4G networks.
The tech firm that isn’t
And Vodafone is a technology share, right? Well, yes and no.
Sure, high-broadband mobile computing technology is leading-edge stuff. But in many ways it’s becoming a commodity on a par with water, iron and rice, and people are consuming it in increasing quantity. Vodafone is also selling huge amounts of plain old phone services around the globe — and that’s a market that still has enough untapped capacity to keep demand going for years.
In fact, for the year ending 31 March 2013, Vodafone got 30% of its service revenues from the Asia, Middle East and Asia Pacific region. Emerging markets is one of Vodafone’s key targets — snag them when they just want to talk, and you might still have them when they want to play Grand Theft Auto.
Maturity counts
If you looked at some of Vodafone’s key fundamentals without knowing which company it was, you could be forgiven for thinking it was a dull and boring firm like a utilities supplier. There’s single-digit earnings growth forecast, the 209p shares are on a lower-than-average P/E of 13, and the company has been paying out dividends of around 5% — with 4.8% forecast for this year.
And to me that’s nice — it’s a company clearly in a high-tech business, but not valued as a growth share with a high P/E and no dividend to speak of. I’m not necessarily saying it’s on a good short-term valuation and I’m not saying it isn’t, but in the long term Vodafone shareholders are not going to be shocked by a less-than-sky-high set of growth figures.
The Verizon thing
The sale of Vodafone’s stake in Verizon Wireless brought to an end a period of uncertainty, and in a pretty good way that gave Vodafone’s shares a boost. But there is certainly more uncertainty to come — that’s a known unknown.
Will there be more mergers, disposals, acquisitions in the industry? For sure. Will there be attempt to take over Vodafone itself? I expect there will. Will there be share price volatility as a result? Most likely.
But what we’ve seen is that Vodafone has the clout and the ability to get a good deal for its shareholders — and I have no hesitation in my opinion that the Verizon deal was a great one. And with the shares being valued more in line with steady mature companies, I just don’t see the same potential downside that afflicts more growth-oriented technology firms.
So there you have it — Vodafone, the tech share that isn’t. You could do worse than give it some consideration.