Smart Phones are Eating the World

Team: Investomics

Nima Behkami, PhD Deep Agnani, PhD Amjad Husain, PhD

Bridge between: Wireless Networks and Personal Computing

3.2 billion (mobile operators) vs 1.7 billion people (PC)

Growth opportunity

• Two-thirds of the mobile phone market has yet to convert to smartphones.

• Close to a billion smartphones will be sold in 2013, while PC sales will gradually decline.

• Existing Markets and Emerging Economies

Mobile Value Chain

Phone Data Plan Content

Investomics Focus

• Mobile phone handset business• Wireless network operators• Mobile content providers

handset

Mobile content

network

Communication Funds (US News)• General attributes of communication funds:

– Concentrate on telecommunication and media companies of various kinds

– Combination of cable television, wireless communication, communication equipment firms and traditional phone companies

– Some favor entertainment firms (broadcasters, film studios, publishers, on-line service providers)

Top Two Communication Funds (US News)• T. Rowe Price Media And

Telecommunications Fund (PRMTX)– Common stocks of media,

technology and telecommunications

– 80% of net assets in companies engaged in internet, publishing, movies, cable/satellite, TV, telephones, cellular services, technology and equipment

– Invest in companies in large-to-mid-capitalization range

– Average risk (compared to similar funds as per Morningstar)

– Trailing returns:• Year to date: UP 11.9%• One Year: UP 17.8%

– Expenses: 0.81%– Total Assets: $2.74B

• ProFunds Telecommunications UltraSector Fund (TCPIX)– Non-diversified– Seeks daily investment results,

before fess and expenses, that correspond to 1.5X the daily performance of the Dow Jones U.S. TelecommunicationsSM Index

– Invest in securities and derivatives that should have similar daily characteristics as 1.5X the daily return index

– Above Average risk (compared to similar funds as per Morningstar)

– Trailing returns:• Year to date: UP 24.7%• One Year: UP 40.6%

– Expenses: 1.78%– Total Assets: $5.44M

T. Rowe Price Media and Telecommunications Fund

6 Month

1 year

5 year

Dow Jones

S&P 500

Nasdaq Composite

ProFunds Telecommunications UltraSector Fund

6 Month

1 year

5 year

Dow Jones

S&P 500

Nasdaq Composite

Approach

• Similar to T. Rowe Price but no movies (i.e. if movies is the major asset / earner for the company than may not invest in stock)

• Major invest in companies in large-to-mid-capitalization range

• Will invest in smaller companies if technology / service may be regarded as “break-through”

Research Methodology• Focus on growth stocks in telecom sector.• P/B: <5; • EPS growth past five years: Positive; • Net profit margin: Positive; • Performance (Rate of return): Quarter up; P/E: 5-25; • Sales growth past five years: Positive; • Return on equity: Positive (but cautiously: if company has large debt

then should be raising funds by issuing stock rather than borrowing); • We consider the probability that the two-thirds of the mobile phone

market has yet to convert to smartphones. Developed and emerging economies are going to do well in the telecom sector in coming decade.

• Holding period on our stock: 6 months to 2 years.

Selected stocksWireless Providers:• AT&T Inc• Vonage Holdings Inc (VG)• Premier Global Services (PGI)• Globecomm System Inc (GCOM)• Lumos network Corp (LMOS)• Extreme Networks Ltd (EXTR)• NeuStar Inc (NSR)

Emerging Economies (India):• Bharti Airtel (BHARTIARTL)• Idea Cellular (IDEA)

Data Storage Companies:• Brocade communication systems Inc (BRCD) • Western Digital Corp (WDC)

Macro Indicators

• GDP• Employment Numbers• Walmart Sales• Manufacturers' new orders for non-

defense capital goods• Index of consumer expectations