When it comes to making money from the Internet's growth, you've been bombarded with information about the American "FANG" stocks like Amazon.com Inc. (NASDAQ: AMZN) and Alphabet Inc. (NASDAQ: GOOGL).
More recently, you've been saturated with stories about the Chinese "BAIT" stocks like Alibaba Group Holding Ltd. (NYSE: BABA) and Tencent Holdings Ltd. (OTCMKTS: TCEHY).
Now, those are all great Internet stocks, and we're not going to tell you otherwise.
But it's hard to get an inside edge when it comes to companies as big and well-covered as those are.
That's where today's stock comes in...
Today, we have a mid-cap company that dominates Internet infrastructure in a country you probably don't hear about very often. This country is probably bigger than you think, with a population of 105 million. And it's probably growing faster than you'd guess, at 6.7% annual GDP growth.
According to Statista, this country's Internet user base is expected to grow from 69.6 million to 93.7 million by 2023. That's 35% growth in just four years...
This pick is sure to get the lion's share of that growth. It already has 60 million subscribers to its home and individual phone and Internet services and is the most recognizable communications company in the country.
If you grab it quickly, you can get it for less than 60% of its fair value.
After 90 Years Keeping a Nation's Inhabitants Connected, This Company Still Finds New Profit Opportunities
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We're talking about the Philippines, and the company is PLDT Inc. (NYSE: PHI).
Establishing and maintaining communications in the Philippines is both 1) critical for public safety and 2) very, very difficult.
That's because it's an archipelago of more than 7,500 islands, and every year, it endures a rainy season filled with tropical cyclones, about five of which will typically be destructive typhoons.
PLDT was incorporated in 1928 to address that problem and establish reliable cross-village telephone service in the worst conditions. By 1933, it had established the first international long-distance service in the country's history.
After the Japanese invasion during World War II destroyed the country's communications infrastructure, PLDT rebuilt it with astonishing speed. By 1953, the subscriber base had surpassed pre-war levels.
Now that the islands were moving past the American colonial period, the company made the transition to native ownership in 1967. And beginning in the 1980s and 1990s, it set its sights on wireless communication and the Internet.
Today, the PLDT "Smart" services for homes and individuals have 60 million subscribers. Net service revenue in that segment was up 7.1% in 2018, even outpacing the country's rapid GDP growth.
Home service revenue in particular is growing at a 10% annual pace. But that's nothing compared to its enterprise services - those for multi-faceted organizations rather than simple personal use.
Revenue for enterprise data and broadband rose 37% in 2018, to an equivalent of $1.7 billion. Enterprise wireless revenue was up 24%.
Enterprise services now account for 60% of the company's revenue, so rapid growth in this segment is going to be key for the company's overall success in the coming years.
But because it's based in a county that's not on many investors' radars, this stock is easy to underestimate. Even a little bit of bad news can lead to overreaction, which is exactly what's happened in this case.
That gives you a great opportunity to pick it up at a discount.
Now Is the Time to Buy PHI
Shares of PHI (that's the ticker, not to be confused with the company name) are down 26% over the last 12 months. Some of that loss was understandable, due to some disappointing 2017 financial results and a recent earnings miss.
But since the company's performance bounced back in 2018 - net income rose 35% - investors are starting to clue in to how much value they left on the table. The stock has closed higher in all but two trading days in March so far.
In addition to the impressive net income figure in 2018, PLDT's free cash flow jumped 155%, putting the company in a great position to keep expanding its offerings and bringing the latest technology to the rapidly growing Philippines.
PHI's price/earnings-to-growth ratio for the last 12 months comes in at 12.98, just 56.6% of the industry average.
That suggests a 77% rise for the stock to reach its fair value.
And if you buy your shares at today's price, you'll lock in a nice 3.92% dividend yield on top of it.
Of course, if you want to learn how to bring in faster gains, week after week...
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About the Author
Stephen Mack has been writing about economics and finance since 2011. He contributed material for the best-selling books Aftershock and The Aftershock Investor. He lives in Baltimore, Maryland.