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What You Were Selling Last Week: BT Group plc

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

One of Warren Buffett‘s famous investing sayings is “be fearful when others are greedy and greedy only when others are fearful” – or, in other words, sell when others are buying and buy when they’re selling. 

But we might expect Foolish investors to know that, and looking at what Fools have been selling recently might well provide us with some ideas for investments that are past their prime

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So, in this series of articles, we’re going to look at what customers of The Motley Fool ShareDealing Service have been selling in the past week or so, and what might have made them decide to do so.

Surging share price

Last week shares in BT Group (LSE: BT-A) (NYSE: BT.US) hit a six year high, having risen 350% since a nadir in April 2009 to reach a level not seen since mid-July 2007.  Perhaps that was enough to tempt some people to at least take a healthy profit on their investment, putting BT into the number ten spot in the latest “Top 10 Sells” list*.

Something that might have tipped the balance in favour of selling is that despite the surging share price, BT’s 2012/13 earnings are still quite some way below their 2007 level — 26.7p per share, versus 34.4p per share in 2006/07 — as is its dividend — under 10p per share, compared with over 15p per share for 2006/07.  On that basis, BT’s shares do look rather expensive.

Another problem is the hole in BT’s pension fund. Despite consuming £3.35bn of top-ups over the past three years (including a £2bn one-off payment last year), analysts at Morgan Stanley and Sanford Bernstein both estimate that the deficit will still stand at over £6bn in 2014, when the scheme is due for a triennial review, up from £4.1bn in 2011. Having to continually fill the hole in the fund is a serious drain on BT’s spare cash, and inevitably limits the potential for dividend growth.

That’s not to say BT has suddenly switched from being a strong performer to a basket-case, because it hasn’t. Earnings are expected to rise over the next couple of years, the dividend is forecast to grow by over 40% in that time, and the company still has more than 50% of UK market share, despite being forced into “unbundling” its local loop infrastructure.

But the market BT’s in — not just telecoms any longer, but also its soon-to-be-launched pay-TV service — is ferociously competitive, and funding  the pension deficit is a constant concern. And there’s also the worry that the departure of the man who presided over the 350% rise in share price, CEO Ian Livingstone (who’s leaving to become a government trade minister), will weaken the company’s leadership. So perhaps some people understandably felt that the time was right to bank a bit of profit, just in case.

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> Jon doesn’t own shares in BT Group.

* based on aggregate data from The Motley Fool ShareDealing Service. 

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