With 2016 just around the corner, we’re rounding up our favorite picks for 2016 and Vodafone is at the top of our list. While Wall Street analysts don’t universally love it, which is usually a good reason to like a stock in and of itself, we believe it has some of the best potential in the telecom industry.

Perhaps one of the most attractive aspects of Vodafone (NYSE: VOD), aside from its 5.4% yield, is it’s easily one of – if not the – most geographically diversified telecoms in the world. Its operations span 26 countries, ranging from the developed markets of Europe to emerging markets in Africa, and more in-between countries such as India.

It also partners with mobile operators in 50 more countries, serving about 450 million customers worldwide with mobile phone and broadband services among a growing menu of options.

Vodafone generates fairly steady growth because of that diversification. While service revenue in the telecom’s largest markets of Germany, the United Kingdom, Italy and Spain was flat to down by as much as 2% in the most recent period, overall service revenue was up by 1.2%. Driving that was 6% growth in India, a 3.9% gain in South Africa and marginal gains in other emerging markets. When mature markets lag, developing ones can pick up the slack.

The telecom has also been reinvesting some of the proceeds from the sale of its stake in Verizon Wireless into upgrading its network and expanding its service offerings. While critics of the deal – and there are always critics – say that Vodafone essentially slaughtered a cash cow for a one-time gain, the simple fact is that its 45% stake in Verizon wasn’t big enough to give the company much say in the business.

But even after returning $85 billion of the sale proceeds to shareholders in the form of dividends and share buybacks, it was left with a substantial chunk of cash to spend.

Spring Forward

Much of that is going towards “Project Spring,” Vodafone’s effort to upgrade its network quality throughout Europe. 4G coverage in the region and data usage lags the U.S., though they’re major revenue drivers for mobile operators. The telecom is working to expand 4G and broadband coverage across Europe to boost that usage, while also expanding its 3G coverage in its Africa, Middle East and Asia Pacific markets.

The program is now about 80% compete and the company aims for 90% completion by the end of the fiscal year. While the program is capital intensive to say the least, sapping Vodafone’s free cash flow in recent quarters, it is already yielding results. Data usage was up 78% year-over-year in the most recent quarter, while the churn rate (customers dropping service) was down markedly.

It has also allowed for the rollout of Vodafone RED, a 4G service plan that offers international voice and text service, as well as access to music streaming service Spotify or Sky Sports Mobile TV from smartphones. Those efforts have stabilized average revenue per user in Europe, while new customers in the region more than doubled from a year ago. Project Spring also likely played a role in its solid growth in emerging market countries.

Vodafone has also been aggressive in making acquisitions, buying Ono in Spain last year and Kabel Deutschland in Germany in 2013. They are the largest cable television providers in their countries, and the acquisitions let Vodafone offer the new customers a growing array of services.

We see at least two great catalysts for Vodafone. The first is spending on Project Spring, which accounted for much the $6.5 billion in capital expenditure in the first half of the year, will soon end.

Europe on the Mend

The second catalyst is Europe’s recovery. While you couldn’t argue that the region is in the pink of health, “moribund” seems to be the new favorite adjective of journalists covering the European economy. Describing the economy as being on the brink of death seems a bit melodramatic, particularly as the European Central Bank (ECB) continues to boost its efforts to stimulate the economy.

While we don’t know yet how effective the program will be, so far the central bank has kept Europe from tipping into an outright depression and prevented the complete collapse of Greece. That’s cold comfort I know, but the ECB clearly has some idea of what it’s doing. And as long as the economy doesn’t collapse, or better yet actually improves, Vodafone has upside.

That’s largely because smartphones are surprisingly uncommon in Europe. While the devices have a 75% penetration rate here in the U.S., it is only 48% in Europe, which is up from 33% two years ago. There’s still plenty of room to grow, especially as 4G service becomes more widely available across the continent, a key requirement for smartphones, along with disposable income.

The consensus five-year growth forecast for Vodafone’s earnings is 8.5%, which seems to be pricing in a sluggish European economy. It’s also a function of that fact that Vodafone’s earnings are somewhat volatile, depending on exchange rates and capex. That still leaves plenty of room for dividend growth over the next few years though, particularly as capital expenditures slow, with forecasters expecting annual dividend increases of about a dime over the next two years.

With a fruitful capex program coming to an end and solid growth potential ahead, Vodafone is still a #1 Best Buy and rates a buy under $39.