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bt stock (LSE: BT.A) are the itch I can't resist scratching. Every month or two I return to FTSE 100 telecom stocks and worry about it.
It's very cheap and the performance is through the roof. I've bought a lot of UK blue chips that match that profile lately and they've done pretty well. However, I can't bring myself to buy BT. Anyone who knows the recent history of its stock price will understand why.
The BT share price just falls and falls. It has dropped 31.71% in one year and 54.35% in five. With other companies, that would tempt me.
By buying a stock when it is cheap and out of favor, I get a lower entry price and a higher return. In theory, I also get a bit of downside protection, because the big drops are already happening.
This stock is so cheap.
There are no rumors about BT shares, quite the opposite. Which means there is little risk of buying at an inflated level.
However, just because a company's share price has fallen by half doesn't mean it can't be halved again. The last time I was tempted to buy BT shares was three months ago, but I'm glad I didn't.
The stock is down another 9.64% in that time. If I had invested £5,000, my share would be worth £4,518 today. It would save me £482. Furthermore, I would be left with the nagging feeling that this is not the end. With BT, the news seems to get worse.
So why do I keep scratching it? Its low forward price-to-earnings ratio of 6.75 times 2024 earnings is one reason. Currently, the FTSE 100 as a whole trades at 12.4 times earnings.
Then there is the income. BT is forecast to return 7.36% in 2024. That's about double the FTSE 100 average of 3.8%.
Ah, but the disadvantages! The reason stocks are so cheap is that most investors don't want to touch them, and that's understandable. And the reason the yield is so high is that the share price has fallen so far. There is another danger. Earlier this month, runner USB warned that BT may have to cut its dividend in half to keep it affordable.
New boss Allison Kirkby is working hard to turn things around. Openreach's superfast full-fibre broadband and 5G network will be available to 25 million homes and businesses by 2026. The group aims to save £3bn by the end of next year and will cut up to 55,000 jobs by the end of the year. decade.
However, BT is having to fight for customers in a competitive market, while being hampered by a huge pension scheme deficit and net debt of £20bn. That's almost double its market capitalization of £10.45bn.
I'm still tempted though. Did I mention it was cheap? J.Morgan Cazenove recently rated the stock as very undervalued and “Ripe for a major requalification”. He estimates that the current price of 105.35p could shave 290p. I'd love to get a piece of that. However, shares continue to fall. I'm not buying BT shares today. But that itch doesn't go away. I'll have to scratch it soon.