There are some good tips about investing that we tend to not follow. One of them is to always invest in the strongest companies of the strongest sectors and not just in the strongest companies like telecoms.
We like to research the market to find the goose that laid the golden eggs…we like to feel smarter than the others. As a result, investing in the strongest company of the strongest sector is not very appealing. You can certainly win money with that, but you cannot impress anyone as almost everyone has them in their portfolio.
The same applies to the worst companies in the worst sectors. When the most important companies in a sector start to fall, chances are that the sector is in crisis.
That is what seems to be happening with telecoms. They are not like hotels or planes that are clearly suffering because of COVID; and at the same time, the most important Telecoms are not behaving very well.
Maybe the worst of them is Telefonica from Spain. At the time we wrote this article, it was flirting with the three euros level after being there in January 2020. Its bad behaviour is not big news; it has been falling since 2015. At some point it will rebound, of course, but it is dangerous to play with stocks in such a bearish trend.
Orange in France does not look well either. It has broken the support at 9.06 euros in what could be a head-and-shoulders figure in the weekly chart. Also, from 2014 to this year, it was in a sideways movement at 10.50 and 14. Now it is at 9.51. Draw your own conclusions.
Vodafone has been falling since 2018. Although it is true that it has done some nice rebounds during this period. Anyway, in January 2018 it was around 206 sterling pounds, and now it is around 112. It has a support at 98.5; and if it breaks it, we would expect it to go down at least to test the 93 sterling pounds level.
For now, Deutsche Telekom from Germany is the one saving its face. It is in a sideways movement between 12.75 and 16.85. It broke the support during the COVID crash, but managed to recovered after that. Nowadays, it is at 13.46, just below its 30-week moving average.
Good opportunity to invest?
All these companies are big; and if it was not because of their behaviour, we could say they could be categorized as “blue chips.” Is it now a good opportunity to invest in them at this cheap level?
Maybe we are denying a once in a lifetime opportunity, but we think just the opposite. Now is not the moment to invest in these telecoms, first because the individual behaviour is not being good, and second because all the companies in the sector are doing similarly bad.
If you think they represent a good opportunity, beware and think twice!
This is not investment advice. This post is just an opinion and may be very wrong. If in doubt, please ask your financial advisor. Contact us today to expand your trading capabilities with a medallion guarantee.