The investment guru turns bearish on Vodafone Group plc (LON:VOD).
Perhaps the most controversial company discussed at the Fool at the moment is mobile telecoms company Vodafone (LSE: VOD) (NASDAQ: VOD.US). Investment guru Neil Woodford recently added to the controversy by selling his complete holding in the company. Was he right to sell Vodafone? Or are the shares due a comeback?
At first sight, Vodafone appears the most uncontroversial of companies. Mobile telecoms is a solid business that steadily churns out income year after year. Vodafone is on an inexpensive price-to-earnings (P/E) ratio, and comes with a juicy dividend yield. What's not to like?
Underneath the surface
But underneath the surface lies more difficulties. Vodafone's main market is Europe, which is really suffering at the moment. This has led to a decline in the company's revenue, and I don't think things will improve that quickly.
What's more, in the UK Vodafone seems to have been outmanoeuvred by the merger of Orange and T-Mobile to form Everything Everywhere, which is beating Vodafone on what was its prime selling point: network coverage.
Plus there is the looming expense of the new spectrum auctions coming up. The analogous auctions 12 years ago smashed a hole in Vodafone's share price. Could the same thing happen again?
Turning the supertanker
But, on the other hand, we have emerging-market growth still to come, plus a coming boom in data services, as more and more people buy smartphones and browse the internet on these increasingly sophisticated devices.
For me, this picture means that Vodafone is not a screaming buy, but neither is it a screaming sell. Personally, I continue to hold the shares. But perhaps this nuanced view was not enough for Woodford to keep Vodafone as part of his income portfolio.
One final factor may be that the stock market seems to be rotating out from defensives such as Vodafone, which have had a strong run in the recent, trouble-ravaged years, to cyclicals, as we move to the more optimistic, bullish times of the future. Woodford may be moving with it. Perhaps we are just watching the Invesco Perpetual supertanker turn?
World-renowned super-investor Woodford has an unerring ability to tune out market fluctuations and fashions and come to a focus on company fundamentals and inherent value. This ability has enabled him to beat the wider market on a consistent basis. Want to learn about his philosophy and his recent buys? Then read our free report on "The FTSE Shares That Britain's Super-Investor Owns".
> Prabhat owns shares in Vodafone. The Motley Fool has recommended shares in Vodafone.