Making a capital gain from investing in a stock usually comes from two ways. Either you buy into the stock when it is rallying and piggyback on the success it is currently enjoying, or you buy into the stock when it is falling and hold it until the company’s fortunes turn around.
The latter is a case in point for the share price of BT (LSE: BT-A) at the moment. The stock has been falling for most of the past five years, trading from just under 500p in 2014 to closing yesterday at 185p. So, is it cheap enough to warrant an investment on the premise of a rally this year?
Election worries gone
At the back end of last year, the concern with BT was that under a potential Labour Government, broadband could be nationalized. The implications of this (particularly on BT’s subsidiary Openreach) would have been far reaching and would have likely hindered efficiency and profitability.
However, with the Labour party losing ground in the December election, this concept has been firmly shelved, which should give investors confidence that BT will remain as a public company, serving shareholders’ best interests.
“Global transformation”
Also in recent news is the progress seen from what BT calls its “global transformation” project. Think of it as a restructure, with the focus shifting towards new technology (e.g., cloud and security services). To this end, in late December it announced the sale of its Spanish operations, including 5,600km of fibre optics.
While still subject to regulatory approval, this is a win-win for BT. It raises funds from the sale to move into fresh projects, while still allowing it to access the infrastructure sold and be a supplier of products to the new owners. Overall, this deal, once completed, could be a real boost to the company share price as investors see the benefits.
Buy in from the top
I always like to take note of the share dealings of the senior management of any firm, which much be disclosed to the public. Investors often get a sense of management’s sentiment from this information – take the example of Uber, which received a great deal of negative press in December when many members of management sold a huge amount of stock as soon as the IPO lock-in period ended. This caused a lot of investors to follow suit.
Last week it was reported that BT CFO Simon Lowth bought around £800,000 worth of stock just after the election and the Spanish sale mentioned above. This was not part of a bonus or compensation, this was of his own free will. The man in charge of the numbers (as CFO) is personally putting his money on the line, which gives me confidence that we could see a share price rally.
On the basis of these three developments in the past month, I recommend looking into BT as a potential top performer this year.
