Should I snap up BT shares at 153p?

BT shares have been falling in 2022. However, with a low price-to-earnings ratio and a good dividend, I think it could be a great addition to my portfolio.

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Like most stocks, BT (LSE: BT-A) shares have fallen in 2022. Down 11% year to date, the stock has seen its valuation fall largely due to rising inflationary pressures. Over 12 months, the stock is down 9.8%.

Regardless of the falling share price, I think that now could be a great time for me to buy BT stock. Let’s take a closer look at why.

Great value

At its current share price, BT trades on a price-to-earnings (P/E) ratio of 12.1. Although slightly above the ‘good value’ barometer of 10, it seems like a reasonably cheap valuation. When looking at BT’s nearest competitor, Vodafone, which trades on a P/E ratio of over 20, I see even more value in BT.

In addition to its value, it currently has a meaty 5% dividend, which is comfortably above the FTSE 100 average of 4. This could be great for adding passive income to my portfolio and helping me hedge against inflation.

BT is a big name in the telecoms industry, which is deemed a ‘defensive’ one. What this means is that it tends to fare well in times of economic turbulence. This is because (pretty much) everyone needs broadband, so the demand is always there. Also, due to the large amounts of pre-existing infrastructure that telecoms firms have, there’s usually less of a need for huge ongoing capital expenditure, which would increase in price with rising inflation.

There have been multiple forecasts of the UK economy entering a recession. As the economic climate worsens, stocks like BT could be in a good spot to weather the storm.

Poor results

Yet its share price performance doesn’t reflect this. Another reason why the stock hasn’t performed well this year has been due to its Q1 23 results. It reported that revenue rose 1%, but profits fell over 10% compared to the year before. A large chunk of this drop came from the group’s enterprise division, which has been suffering due to rising inflation putting pressure on B2B sales.

BT shares are also facing pressure from strike action. The Communication Workers Union (CWU) has been in talks with BT for some time surrounding pay packages. The firm had made a series of offers to the CWU, all of which were refused. Further strike action is set to take place because of this.

Strike action puts it between a rock and a hard place. If it doesn’t increase pay, operations are hindered, results are tainted, and the stock goes down. However, as it employs roughly 100,000 people, increasing pay means millions in extra costs. With thin margins, this isn’t something it can afford.

The verdict

Overall, BT shares look like a solid buy to me, especially in the current uncertain macro climate. Yes, it reported poor results and is in a dispute over pay. However, I feel the value, dividend, and future outlook of the firm outweigh these risks. As such, I’m looking to load up on BT shares at 153p.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has recommended Vodafone. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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