Hawaiian Telcom: Big Things with Little Telecom

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HawaiianTelecom_logoWhen it comes to investing in the ultra-defensive telecom sector, most investors have a tendency to focus on the blue chip names such as Dow components AT&T (NYSE: T) and Verizon (NYSE: VZ). Those that are in search of yields that are even more impressive than the juicy ones sported by AT&T and Verizon opt for stocks like Centurylink (NYSE: CTL) and Windstream (Nasdaq: WIN), just to name a pair.  Most investors focus on large-cap names and skip right by the Little Telecom Microcap Group.

Little Telecom Bottom line:

That strategy ignores some companies with significant growth potential. There are legitimate opportunities in the telecom sector, a group not normally known for being home to a plethora of growth stocks. One of those growth names is Hawaiian Telcom Holdco (Nasdaq: HCOM).

Hawaiian Telcom provides basic telecom services along with Internet services to business and residential customers in the Aloha State. As of March 1, 2011, it served approximately 437,500 local access lines; 225,400 long distance lines; and 100,700 high-speed Internet lines, which served 82,800 retail residential lines, 16,700 retail business lines, and 1,200 wholesale business and resale lines

With a market cap of $166 million, Hawaiian Telcom has outperformed AT&T and Verizon by wide margins on a year-to-date basis. On March 1, the company announced that it had received approval to transfer its stock listing to the NASDAQ Global Market from the NASDAQ Capital Market. What that means is Hawaiian Telcom has enhanced access to capital markets and will become more appealing to fund managers looking for a micro-cap to add to their portfolio.

“We are very pleased to have met the tougher listing standards of the NASDAQ Global Market,” said Eric K. Yeaman, Hawaiian Telcom`s president and CEO, in a statement.  “We believe that the transfer to the Global Market will further increase our stock exposure and improve our trading liquidity.”

In February, the company announced that it had been added to the Wilshire 5000 Total Market Index, one of the broadest measures of the U.S. equity markets.

Speaking of fund managers, net institutional purchases of Hawaiian Telcom in the current quarter have totaled 1.5 million shares, which represents about 24% of the company’s float of 6.25 million shares, according to Kapitall.

Insider trades for little telecom gem

Over the last six months, insiders were net buyers of 29,550 shares, Kapitall noted. Remember, there’s only one reason why institutions and insiders buy a stock: Because they think it’s going up.

Today, Hawaiian Telcom can be found trading at a very reasonable valuation of 8.3 times forward earnings and less than 1x book value. On a technical basis, the stock’s chart has just started to show signs of improvement and if the shares can break resistance at $16.50 and there’s a legitimate chance the 200-day moving average can be reclaimed. The stock recently closed slightly below that level.

From there, if the market cooperates and more institutions keep joining the party, Hawaiian Telecom could potentially challenge the low $20s this year. No guarantees of that happening, but maybe it’s time to make a call to Hawaiian Telcom for at least a small position.

The Company will host a conference call to discuss its fourth quarter and full year 2011 results at 8:00 a.m. (Hawaii Time), or 2:00 p.m. (Eastern Time) on Thursday, March 15, 2012.

Posted by Dr. Micro