Mario Mainelli, CFA BCE Inc. BCE-T DON'T BUY May 09, 2018

This pick was before the sale of MLSE to Rogers and before the acquisition of Ziply. The yield was 10%, over the worst of fibre capex, and lower interest rates would help. She figured it had so many assets, that any of them could be sold to fix the balance sheet and alleviate investor concerns.

She still owns it, buying more around $30. Eventually, asset sales can help. In a recession, defensive plays are a positive trend for telcos.

He quoted from a technical analyst: "Nothing good happens below the 200 day moving average". Its dividend is 5.7% and the payout ratio is 45%. Earnings are expected to be down this year and the next. In general telcos are in a very competitive business and have very high debt to equity. They have some unused or little used assets. There are better risk adjusted returns elsewhere.

It is turning around with the chart turning positive. There's a big catch-up trade to be had. The next resistance level is $42. It's the laggard among the big three telcos.

Underwater the past 3 years. EPS fell, free cashflow has also declined. Analysts have an average upside price target of 55% up from here, but she doesn't see that much. More like 4% from here. Still restructuring. She owns Telus instead.

He'd stick with it at this point. Have now see the worst news for the telecom sector, as Freedom Mobile and immigration changes were headwinds. Selling MLSE will help. Still getting paid a nice yield of 5.2% to wait.

See his Top Picks.

He fully understands the plan, which is to sell covered calls and then get called away as part of a tax-loss strategy. He's not an accountant, so can't give tax advice. 

Some people sell a stock, and then sell an in-the-money put or a cash-covered put to maintain some exposure to that stock. Just make sure you're not re-acquiring the stock within 30 days (or the tax loss won't count).

It's time to step back into telcos. Dividends are sustainable. He owns all 3 Canadian telcos. Share prices have bottomed, and he expects margin improvement. Costs have been slashed. Is partially optimistic, because shares have been so beaten down, and yet the industry isn't going anywhere. There will be some growth going forward. Is bullish on telcos. BCE's strategy in the US (buying a US company) will generate reasonable value. Telus is the faster grower and has made good moves outside telecoms to create value. Rogers is more of a question mark, including their sports holding, but is worth a ton of money (the value of sports teams is huge).

The plan is OK. Lots of moving parts. The turnaround from overpaying the dividend is there. Looking forward, dividend's probably safe; can probably start growing it again 3-4 years from now when the fibre play starts to pay off. Fibre is a big move to the future; if it works, it'll be spectacular. 

CRTC decision today to allow competitors to use BCE's fibre footprint will reduce profits, as the access price will be regulated. Hopefully the regulated price will at least cover the costs. Also takes away the oligopoly aspect.

Let's look at the 3-year chart. Definitely turning the corner after a 3-year downtrend. Dividend cut helped. Telcos are boring and defensive, lower beta. So they'll weather the upcoming corrective storm of 1-3 months. Doesn't mind nibbling here, but during weakness he'd be putting $$ to work in the more cyclical areas of the market.

Investment community appears to have come around to the Ziply acquisition. His team, too, didn't like the acquisition or the dividend cut. When a stock is wounded or hurt, people will abandon it. A wave of selling from both quant and passive investors that isn't necessarily rational. 

But you don't get a stock moving up this much without some serious institutional interest. Look at the lessons of MFC or ALA. Especially if a name is a bigger weight in the index, once they start to turn they can move a long way. He's not saying it's going back up to $70, but thinks it can get back to $40. Yield of 5% while you wait for that to happen.