A REAL TURKISH DELIGHT

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

With a population of 70 million, Turkey is bigger than either the United Kingdom or France. And unlike China and India, Turkey has been modernizing its economy since the 1920s. Whenever I travel to Turkey, I am always struck by the cosmopolitanism of both its capital, Istanbul, and the managers of its top companies.

This week’s Global Bull Market Alert pick features Turkcell (TKC), the leading operator in the Turkish cell phone market. With 27.9 million subscribers, Turkcell is one of the five largest European cell phone operators — a number that approaches the population of Canada. Nor does Turkcell limit its operations to Turkey’s own sizable domestic market. It is present in Azerbaijan, Georgia, Kazakhstan, Moldova, Northern Cyprus and Ukraine.

2005 was a watershed year for Turkcell. It added 4.5 million net new subscribers and recorded a 19% increase in its overall subscriber base. Today, two out of three Turks with cell phones are Turkcell subscribers. Revenue increased 33% to US$4.3 billion and net income soared 78% to US$910.9 million. On a forward P/E basis, Turkcell sells at a 50% discount to America Movil (AMX), its Latin American counterpart and Global Bull Market Alert pick. And its stock price is identical to what it was a year ago.

Another tailwind: Turkey is negotiating for entry into the European Union (EU). Whatever the ultimate outcome, this means a run up in price of Turkish assets across the board, including stocks, bonds and real estate. This process mirrors what happened in the 10 new EU countries prior to their entry into the EU in 2004. Investors in local stock markets tripled their money in 24 months. Turkcell is also the only Turkish company listed on the New York Stock Exchange.

Exclusive  This Week's Economic Data Should Reassure Investors

No doubt Turkcell stands as a sophisticated, international company on its own. Last year, Business Week ranked Turkcell 14th in its annual INFO 100, placing it alongside the top tech players in the world. And next time you’re in Turkey, take your BlackBerry with you. Turkcell launched that service there last year.

Our short term target price for TKC is $23. That’s a 34% upside from the current price. So let’s buy Turkcell (TKC) at market today, and place your stop at $15.10. If you want to play the options on this one, buy the July $20 calls (TKCGD.X). Be cautious, though: these options can be quite illiquid.

PORTFOLIO UPDATE

Yesterday we were stopped out of Gold Fields Inc. (GFI). Also, investment bank UBS upped its price target for America Movil (AMX) from $38 to $45, as this other cell phone play continues on its torrid growth path.

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