Why I’ve Turned From Bear To Bull On Vodafone Group plc

Having looked more closely at Vodafone Group plc (LON: VOD) I’ve changed my stance and now believe it is a ‘buy’.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Vodafone (LSE: VOD) (NASDAQ: VOD.US) is a company that I have recently been bearish about.

Indeed, I have been highly critical on Fool.co.uk about its recent decision to sell what I viewed as its ‘crown jewel’, the 45% stake in Verizon Wireless. I couldn’t understand the sale and did not see the value in simply returning the bulk of cash from the deal to shareholders.

However, I’ve put my concerns about Verizon Wireless to one side and, instead of looking three months ahead, am now looking three years ahead. As a result, I’m bullish on Vodafone’s prospects.

The main reason for this is the exceptionally strong cash flow that Vodafone, a mature company operating in a mature market, has at its disposal. Indeed, the strength of this cash flow can be seen when assessing the value of Vodafone’s shares using the price-to-free cash flow (P/FCF) method, with Vodafone’s P/FCF being an impressive 5.8%.

This highlights the attractive valuation that Vodafone currently trades on, with free cash flow also being relatively consistent and stable due to the diversity and range of regions and products that Vodafone operates and sells in.

Furthermore, I’m also aware that market sentiment has been strong towards Vodafone and it would be of little surprise to me if this were to continue into 2014. The Verizon Wireless deal optimism should run through the first quarter of 2014 so I would expect the share price to be buoyed by this deal and by any potential acquisitions made by Vodafone.

Of course, a major attraction of Vodafone is its yield, which is currently 4.7%. This is favourable when compared to the wider FTSE 100, which has a yield of 3.5% and shows that Vodafone remains a great yield play for income-seeking investors — especially when bank savings rates are so low and inflation is a constant hurdle to overcome.

So, I’ve changed my stance on Vodafone having looked at the medium to long term (rather than the short term) and focused on the strong free cash flow of the business, which is best highlighted by an impressive P/FCF ratio. In addition, market sentiment should remain positive in the short to medium term, while an impressive yield is great news for income-seeking investors like me.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

> Peter does not own shares in Vodafone. The Motley Fool has recommended shares in Vodafone.

More on Investing Articles

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »