Chart of the week: could BT shares rally 60% from here?
21st November 2022 12:18
by John Burford from interactive investor
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Having just bounced off a two-year low and triggered a key technical indicator, BT shares have attracted the interest of analyst John Burford who is on the hunt for value stocks.
There is little doubt that last week's Autumn Statement (aka The Bad News Budget) did neither consumers nor companies any great favours. There were few if any of what the mainstream media laughingly terms 'giveaways'.
With taxes forecast to shoot up to levels last seen during the Second World War when the nation was fighting for our very lives with huge armament expenditures, we have a backdrop for business that is 'challenging' (another popular euphemism) to say the least.
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Gone are the heady days of rampant speculation in the high-tech future when FOMO (the Fear Of Missing Out) was in full bloom. The popular big tech FANG Index has lost almost 50% since the highs of a year ago. Ouch!
Incidentally, Elon Musk is a very fascinating individual is he not? Is it possible that he bought Twitter at the very top of the market? His difficulties with turning the business around is well covered in the media. And this experience mirrors that of his early days of Tesla Inc (NASDAQ:TSLA), which at one point was in danger of collapsing.
But it was the state-mandated transition to electric vehicles (EVs) with huge subsidies attached that helped turn the company around from its huge losses to small profits – plus the fact that the cars were hugely innovative and much desired.
But will the state come to the rescue of Twitter as it did with Tesla? Not very likely.
So my question is: is there any value in sectors well away from the bear trend in tech and EVs?
The old warhorse BT Group (LSE:BT.A) is a good candidate for consideration. It has slumped in recent weeks but trades well above the corona crash low of 95p set in August 2020.
Past performance is not a guide to future performance.
From the 2020 low, it rallied to the 200p range twice and in recent weeks has dipped to the 120p range, where the Relative Strength Index (RSI) has once again touched the critical 30 line (that indicates the shares are 'oversold'). And that touch should stem the immediate decline and herald a move higher.
But the outlook for its broadband Openreach business appears less than buoyant, with forecasts of losing market share to its numerous 'altnet' competitors. A price war is breaking out but BT would likely be among the last ones standing if a bitter price-cutting trend developed.
With a dividend yield of over 6%, I expect a rally to my first target around 200p is on the cards. I would take any move to under 100p as a valid reason to visit my drawing board.
John Burford owns shares in BT.
John Burford is a freelance contributor and not a direct employee of interactive investor.
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