BCE stock is becoming downright cheap, this investor says

Shares of telecom giant BCE Inc. (BCE Stock Quote, Chart TSX:BCE, NYSE:BCE) has been heading south for a good four months now. Is there sign of a turnaround?

Probably not in the near term, says Ross Healy of Strategic Analysis Corp., who nevertheless believes there’s a buying opportunity coming up.

BCE’s slide has taken it from a high of $62.90 on December 13 steadily down to where the stock now sits as of Friday’s trading at $53.62. For one of Canada’s blue chips, that 14.8 per cent drop is significant, but it could also make for a cheap pickup, as the stock comes with an ever-more-attractive dividend of $0.775 per share per quarter which is now heading towards 6.0 per cent yield territory.

The drop off has been blamed on rising interest rates, which impact BCE’s debt but also make it that much more attractive for conservative investors to park their money elsewhere, even with the alluring yield.

Healy says that the stock could head lower over the short term.

“When I look at the chart of BCE, which is just kind of fading, it’s not collapsing. It’s like, no earnings growth, no fair market value growth despite the nice dividend,” he told BNN. “I wouldn’t be surprised if the stock came back a little bit further, maybe another ten or fifteen percent. I think it would then get pretty darn safe because it’s getting quite cheap. But as I say, the market’s gotten to a point where it doesn’t care, and after that, what do you do? You go someplace else.”

Healy interprets the BCE’s downwards and sideways trading as a sign that it’s hit up against its ceiling. “BCE peaked precisely at our fair market value a little while ago and it’s been trying to go higher but the earnings won’t come in,” he says. “What’s happening is that the market will try and try for a while and then it’ll go, ‘Okay, if you’re not going to cooperate, I’m going someplace else.’”

The trend is not exclusive to BCE, as the other two of Canada’s Big Three, Telus Corp and Rogers Communication, are also down since December. And while Shaw Communications sits in fourth spot, it is challenging the others for dominance through strong growth in its wireless subscriptions.