Forum Archive Index - July 2001

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

Hi Phaedrus, 
>
>
>Consider TLS. 

> "So what's the point of saying the uptrend had ended if the stock
> then resumed its upward movement?" Stock prices generally move in
> a zig-zag manner. Uptrends tend to be followed by downtrends, or
> perhaps trading ranges. 
>
>
That sounds mightily close to being able to predict the future 
Phaedrus.   You are saying that after an uptrend a share price is 
likely to remain stable or trend down, yet you have already admitted 
that a chart cannot tell you that.
>
>
> Since we are not interested in holding on
> to this stock should it be moving sideways or down, the end of the
> uptrend is a sell signal. Surely you do not think this stock could
> have continued going up forever. 

> As a fundamentalist, at what level would you consider TLS fairly 
> valued (or overvalued) and sell?
>
>
That has yet to be discussed in detail on the FIG, but I am fairly 
sure that PEG ratio will figure strongly in the answer.
>
>
>   
>Consider TLS again. Say you or Snoopy analysed this stock in
>terms of the things that matter, such as the quality of the
>management, the product, the market characteristics,the gross
>yield %, the nta per share, the p/e, the yield on shareholders
>funds, and the growth of earnings per share. You concluded that
> TLS shares were valued at say $8.50 which made the issue price an
> absolute steal.
>
>
After doing more or less exactly that I came to the conclusion, about 
a year after the float, that the correct valuation was around $A6.50, 
or roughly $NZ8-.   So why didn't I sell when the price went above 
that?  It was because valuations are a moving target, and as the 
dot.com boom looked better so did TLS!   And 40% over the 'old fair 
value' was quite a mild dose of overheating, compared to some shares 
out there.   It wasn't out of the question that $9.20 would 
have been fair value if the dot.com boom had gone better.  I guess I 
regarded the territory between $6.50 and $9.20 as a good speculative 
punting range (and still do), with the insurance that if things went 
a bit wrong, the share price would not collapse like a house of 
cards.

Nevertheless, I think you are missing the point on why a 
fundamentalist would invest in Telstra.   The main objective is the 
gain in earnings and dividend income and the dividend went from 14cps 
in FY1998 to 18cps in FY2000.   It would seem that this increase 
is sustainable, as it allows sufficient profit to be reinvested in 
the business to grow it, without scurrying back to the shareholders 
for more money.  For me, an earnings downturn would be more of a 
cause to worry, but the earnings have only ever gone one way - 
upwards.   To that extent, whatever the share price does (gross 
overvaluations of 40%-100% or so aside) doesn't really matter, as I'm 
not planning to sell out within the next 3 years.   Holding TLS 
also fulfills my objective of having some ongoing exposure to 
the telecommunications sector.SNOOPY




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