Australian Investment Blog

Overview With the ‘position of the market’ thoroughly covered in our weekend report, this morning’s report will focus on Telstra (TLS), a stock we have mentioned recently because it's a chart pattern that has been catching our eye. Telstra TLS clearly remains out of favour with investors with the stock falling 5.2% last week compared to the ASX200 which rallied 3.9%. This weakness likely coincides with the market's recent overall improved confidence because TLS is often perceived to be a relatively "safe haven" and, hence, generally outperforms in times of significant market weakness. Nevertheless, investors should always stand back and look at the bigger picture where TLS has been a poor performer since early 2015, enduring an almost 25% correction, compared to the markets 21.5%. Specifically, when we look at its main Telco rivals Vocus (+115%) and TPG Telecom (+88%) share price performance since the start of 2014, TLS's +0.6% can only be described as simply awful. Professional investors have enjoyed the rallies in VOC and TPM whereas not necessarily so for the retail investors who chase the yield of TLS; but is this a "trade crowded" trade and will TLS be ready to play some catch up? TLS has just announced a $2.09bn first half profit, declaring a 15.5c fully franked dividend but, notably, an increase in revenue was offset by rising operating expenses. Market Matters is not infatuated by TLS as a company with their profit margins for mobile, data and IP businesses looking to be under pressure. Nevertheless, they do have clear stability with cash on the balance sheet. Technically TLS looks very similar to the GOLD ETF shown below and also the Emerging Markets Index / Fortescue (FMG). This is a positive risk / reward picture. If TLS falls to ~$5 (5% lower) in coming weeks, ideally before its 15.5c fully franked dividend on the 1st of March, it represents good risk / reward buying.