Wednesday, March 17, 2010

Telecom Share Price Limbos but has it jumped the Shark?

How low Telecom NZ [TEL.NZ] shares could go has been the subject of talk not only in the business media today but in the mainstream non biz as well.

At close of market today TEL shares reached a new all time low of NZ$2.15 on very high volume after touching $2.13 earlier post regulation from Government raising its ugly head again yesterday and the continued woes of the XT Mobile Network failure.

The question for investors remains. Should you be getting in or getting out and if you want to buy in should you buy now?

It is no secret to my readers that I have been bagging this company as a long-term investment for over 10 years but in the short term you stand to make some easy money.

Having said that if you had participated in the 1992 TEL IPO then you would have had an annual return of around 25% net for the last 18 years if you include dividends and are eligible for the full tax credits - 35% better than the average of all NZX indicies.

Those days are over though as the dividends will be under pressure in the medium to long-term and the prospects for profit growth look bleak.

Bad news is good news though!

As least for the short term.

The previous share price floor seemed to be around the $2.25 mark (see 6 month chart above) where buyers came in, volume was up and the share price stabilised and then rose from that point.

The chart does look like one hell of an ugly sister (it keeps going down) but there could be good opportunities here for those patient investors.

More bad news could lead to a serious drop to below the 2 buck mark and at that point all is on for young and old because the bargain hunters will be out at some stage - as they were today.

I wouldn't touch it yet though. I would be a patient wallflower, wait for the drunken suitor to throw up in the garden and then pounce to wipe his chin off.

Somewhere near two bucks would be a good time to enter the party.

When to leave is another story entirely.

If you get a hangover please don't blame me.


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