Since the Berlin Wall came down nearly two decades ago, the former Eastern Bloc has received a crash course in the risks and rewards of Western-style capitalism. Despite the ups and downs, there’s little doubt that it sure as hell beats the previous communist system.

During the 1990s, while everyone in the United States was going bananas over online pet supply retailers whose shares were trading at a bazillion times concept (I kid you not… I actually heard an analyst use the ridiculous phrase “price to concept”… yes, it was close to the top), a tsunami of privatization covered Eastern Europe, resulting in the securitization of mundane, formerly state-owned assets such as phone companies and electric utilities.

[These types of companies are exactly the type of securities StreetAuthority co-founder Paul Tracy looks for in High-Yield International — high-yields from dependable overseas investments like telecoms and utilities.]

One product of that wave was Hungarian phone company Magyar Telekom (MYTAY.PK). Privatized in 1993 by a consortium led by European telecom giant Deutsch Telekom (DTEGY.PK) and U.S. baby bell Ameritech, which is now once again part of AT&T (NYSE: T), Magyar Telekom has grown to provide fixed-line and mobile telecommunications services in Hungary, Macedonia and Montenegro. But aren’t those peripheral European countries, where all of the problems are? Hungary and the others aren’t any of the initials in the infamous PIIGS acronym (Portugal, Ireland, Italy, Greece, Spain) of countries with spiraling debt. That’s because they were the opening act to PIIGS-apalooza.

The Hungarian Republic has one of the largest budget deficits in the European Union. Its sovereign debt was downgraded to a less-than-stellar “BBB+” in 2008, long before the proverbial goulash hit the fan. As a result, the government implemented austerity programs that have created negative income growth for the nation’s economy. All bad? Not quite. Both Audi and Suzuki have major automotive manufacturing facilities in Hungary. The country has a stable political system, a highly-educated population, and is relatively natural resource wealthy.

But a sour economy shouldn’t prevent you from buying a valuable asset at a rock-bottom price.

Magyar Telekom’s shares trade at about $13 (USD) per share. That’s nearly a 40% discount from their 52 week high. The stock price tumbled around the time that Greece’s sovereign debt was downgraded. Remember, as previously discussed, Hungary received its debt downgrade two years prior. But, as always, nervous markets punish ALL participants. And that creates opportunity for the “non-chicken.”

The opportunity for Magyar Telekom looks compelling. The company’s tangible (physical and financial assets) and intangible value (trademarks, goodwill, etc.) increased by 22% year-over-year. The shares trade for about 1.1 times book value and an extremely cheap 8.2 times earnings. A Bump to 1.4 times book wouldn’t be unreasonable, which would put the stock at $17.50 — good for a gain of about 33%. Net cash generated from operations has increased respectably as well. Last year’s dividend was $1.66 (USD) per share. That’s a better than 12% yield. Indications from the company lead us to believe that this year’s dividend should clock in about the same.

On a macro note: while Hungary is part of the European Union, it won’t be allowed to convert to the euro currency for another couple of years. Based on the rules set by the Treaty of Maastricht, the powers that be want to see Hungary’s budget gap decline. But looking at the road the euro is going down, and I do mean down, not being in that club isn’t such a bad thing. It may enable the Hungarian economy to decouple from the problems the euro is having and will continue to have. Not that the forint, the Hungarian Republic’s official currency, is some sort of safe haven. But if the euro goes away, things might not be as chaotic for Hungary for not having been part of it in the first place.

Naturally, the reward isn’t without risk 
Magyar Telekom’s third quarter operating profit was down about 6.9%. Not a horrendous number from the previous year. But when you’re hunting for steady, dependable dividends, that’s not the trend you want to see. Trading volume for the ADS’s (American Depositary Shares) is spotty as well. Some days, 100,000 shares may cross the tape… some days, 40,000… some days 14,000. Any investor should know well enough to use strict limit orders and be prepared, if filled, to hold something that they know is liquidity-challenged. Foreign taxes are also a concern. (Check with a tax advisor.)

Lastly, of all of the former eastern bloc European countries, the Hungarian Republic has been one of the slower nations to privatize formerly nationalized companies. This will always put a drag on foreign capital entering the economy. Also, as the winds of discontent blow across the continent, recent opinion polls in Hungary show that a majority of citizens who lived during the socialist era favor a return to those old, collective ways. Magyar Telekom could be re-nationalized as easily as it was privatized. It’s a possibility but honestly, I think it would be a stretch. Once the capitalism toothpaste is out of the tube, it’s very hard to put back in.

Action to Take –> If you’re hearty enough to go bargain shopping in Europe, it’s probably OK to accumulate Magyar Telekom at these levels. Be patient and use limit orders. A reasonable 12-month price target would be between $17 and $18.

P.S. — I don’t know if you’ve seen this or not, but a Texas man has figured out how to collect thousands of dollars a month in dividend payments alone. Last year he made $41,161 this way. Whether you’re on a fixed income or not, I’m sure you could benefit by copying this man’s formula for your own use. Here’s everything you need to know…