Looking at Prague

By Travis Johnson, Stock Gumshoe, November 25, 2008

Eastern Europe has been crushed along with all other emerging markets, and according to an article in Barron’s this past weekend the Prague market has been the worst hit Eastern European market, second only to Russia.

I bring this up because one of the stocks mentioned in that Barron’s article was the same telecom firm teased by High Yield International in an ad I looked at a couple weeks ago (that article is here, if you’re interested).

The company was Telefonica 02, a high yielding wireless and wireline phone company, the leading such firm in the Czech Republic, and which is trying to expand to Slovakia. The folks at the Lord Abbett International Core fund say that the decline in the Prague market is overdone, and that these stocks have been sold largely because other Eastern European and emerging markets are less liquid and those holdings are more difficult for panicked or redemption-facing managers to sell.

In addition to Telefonica 02, Lord Abbett has been adding the main electric utility in the Czech Republic, CEZ. Both have good dividends and what would have been considered a while ago to be bargain valuations based on earnings, and if the Czech economy remains OK you’d imagine that an electric utility and a telecom would be reasonably solid bets. The pink sheet tickers for those are TFAOF for Telefonica 02, and CZAVF for CEZ, neither of which trades very much in the US.

Should you buy those? I don’t know — I still have doubts about Telefonica 02’s growth, but they should be fairly stable. And though Lord Abbett’s manager likes them, this particular fund isn’t exactly a trend-setter or barn burner of late, it’s a two star fund from Morningstar and has been fairly close to the performance of the EAFE index.

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