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The flagship FTSE 100 The blue chip index includes some companies that look like real bargains to me.
Here I want to talk about one that is selling for pennies, has announced plans to cut its dividend, has considerable debt, and is downsizing its business.
That may not seem like everyone's idea of a bargain!
So why do I think the price of the stock in question looks so much cheaper than I think it could be in a few years?
fallen giant
The action in question is Vodafone (LSE: VOD). It's hard to remember now how big and ambitious the company was a quarter of a century ago.
Not only has the FTSE 100 company's market capitalization shrunk since then (although it remains substantial, hovering around £18bn), but the company has also been getting smaller. In recent years it has been selling some of its operations in several European markets.
This has generated cash that has allowed Vodafone to reduce its debt. I see it as a positive step, although the company still has more debt than I would like.
But a reduced business footprint could well mean that revenue and profits decline in the coming years.
Why I like to share
As I see it, there are at least two very different ways of looking at this situation.
One would be to view Vodafone as a former high-flying company that is now in a long-term managed decline. The dividend cut announced for next year is not the first.
The share price graph also looks dismal, with the FTSE 100 company having seen its shares more than halve in the last five years.
But another approach would be to view Vodafone as being saddled with a share price that reflects old investor fears, while its current business strategy is actually positioning it for a better future.
In my opinion, selling units and seeing revenue drop is not necessarily a bad thing. If it carries out its strategic shift successfully, Vodafone should be more focused and have a healthier balance sheet than before.
Customer demand remains high, the company has a huge customer base and can also capitalize on some interesting growth opportunities, such as the rapid expansion of mobile money usage in Africa.
Yes, the dividend will be cut in half. But the current yield is 11.4%. Even at half that level, the performance would be well above the current FTSE 100 average.
I'm grabbing
That explains why I have no plans to sell my Vodafone shares.
I think they are much cheaper than they should be and hopefully than they could be in a few years.
With a great market, a great brand, and a great dividend yield even after halving it, I see the glass as half full.
