BCE, Inc. (BCE)

Continuing with the theme of stocks which may become oversold during the tax-loss selling season, I’d like to focus on Canadian income trusts in general and BCE in particular.

Lots of people got burned last week when the Canadian government unexpectedly announced a plan to aggressively tax income distributions from trusts, which have become a means for Canadian companies to avoid payment of corporate income tax, and a means for foreign investors to reap very high yields. Canadian income trusts like Pengrowth Energy Trust (PGH) and Primewest Energy Trust (PWI) were hit the hardest, but losses were widespread, and even BCE took a hit because they were in the process of converting to an income trust to cut their tax payments. BCE had rallied quite a bit this fall in anticipation of increased income to investors after the conversion.

To keep it in perspective though, BCE is one of Canada’s premier blue chip stocks. They provide landline and wireless communications services, Internet access, data services, and video services to Canadian residential and business customers. Thus the company is directly comparable to T, BLS, and VZ, except that BCE is operating in an environment with fewer competitive threats.

During the last five years, BCE has outperformed T, BLS, and VZ, and its performance has closely paralleled the S&P 500, but with much less volatility (beta .38). Yet BCE has a current yield of 5.38%, superior to its American telecom peers and vastly superior to the S&P’s yield of 1.9%. Additionally, the Canadian dollar has been gaining against the U.S. dollar for the last year and a half, and if this trend continues it will enhance the value of BCE shares for American stockholders.

BCE shares were trading 22% above their 200 day moving average just four weeks ago, but now they are trading slightly below the 200 day moving average where they are fairly valued in my opinion. On any further decline toward the 52-week lows just above 22, I would consider BCE undervalued and start looking for an entry point. This looks like a real possibility in the coming weeks.


2 Responses to “BCE, Inc. (BCE)”

  1. larry macdonald Says:

    Canadian cable companies seem to be making inroads with VOIP and bundled marketing into BCE’s last remaining stronghold in local telephony. I wonder if the dividend might not be sustainable over long run?

  2. Alligator Investor Says:

    That’s a good point. The American telecoms are facing similar competitive pressures from Comcast et. al. The future is by no means certain for any of them.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: