is now ready for the boom in demand, Smith says, and should see earnings grow 20%-220% this year, followed by 15% annually for the long term. The shares currently are cheap in comparison to their growth rate, trading at a P/E of 16 times estimated 1998 earnings. According to Smith, the stock could reach over $30 a share in the next year or so. “This is one to tuck away,” he says.
Although Europe’s telephone companies face increasing competition, Smith thinks Telecom Italia Spa (NYSE: TI) can more than weather the onslaught. “The company has the world’s largest cellular franchise, and TI has seen its mobile phone business grow 60% in each of the last three years,” he says. Smith thinks TI can grow earnings at a 14% average annual rate over the next five years, and by converting Italian accounting figures to U.S. numbers, the stock seems priced at a bargain P/E of 13. Smith sees the stock rising to the mid-$80s in the next 12-18 months.
He’s also bullish on another telephone company, Portugal Telecom SA (NYSE: PT). Portugal’s developing market keeps demand for phones skyrocketing, propelling PT’s growth to among the fastest in Europe. That alone should help PT grow earnings 25% yearly, Smith says, even though the stock is trading at only 18 times projected 1998 earnings. He feels the stock could get to the low $60s.
Finally, Smith’s keen on Allied Irish Banks (NYSE: AIB). Ireland’s economy is growing a whopping 10% a year, which has boosted AIB’s loan growth to 15%-20% annually. Meanwhile, several key banking acquisitions in the U.S. market should help Allied Irish grow earnings 13%-15% this year, and 15%-20% in 1999. The stock’s cheap, trading at a P/E of 14 times 1998 earnings at a time when U.S. banks fetch multiples of 17-20. Smith’s conservative price target is $75 a share in the next 12-18 months.
(Exchange: Symbol) Price* EPS Growth P/E
ING Groep (NYSE: ING) $52.13 15% 13.5
Industrie Natuzzi (NYSE: NTZ) 25.06 15 16.0
Telecom Italia (NYSE: TI) 68.56 14 13.0
Portugal Telecom (NYSE: PT) 52.94 25 18.0
Allied Irish Banks (NYSE: AIB) 75.75 15 14.0
* As of 2/25/98 PHOTO (COLOR): Smith focuses on double-digit growth companies