If you have been following my writing, you’ll have noticed I like to keep things clean and simple. Part of the reason for that is to ensure I understand the companies I’m investing in. Warren Buffett has the same investment philosophy. It’s simply a bad idea to throw money towards an investment simply because of a feeling or a hunch, or a recommendation. You have to do the work yourself. It certainly helps, though, if you’re able to draw on a whole bunch of resources (like us Fools) to assist…
If you have been following my writing, you’ll have noticed I like to keep things clean and simple. Part of the reason for that is to ensure I understand the companies I’m investing in. Warren Buffett has the same investment philosophy. It’s simply a bad idea to throw money towards an investment simply because of a feeling or a hunch, or a recommendation. You have to do the work yourself. It certainly helps, though, if you’re able to draw on a whole bunch of resources (like us Fools) to assist you with your decision making. We’re all in this together!
In this series we’re looking at stocks that, in my view, will look after your money. As I hope I have made clear so far, generally speaking, there are three types of stocks in the FTSE 100 that fit into this category. They are healthcare, consumer staples and telecommunications stocks. The telecommunications sector is particularly attractive because it contains companies that you’ve got a better-than-average chance of understanding. It’s also attractive because the major players in this sector often command ‘monopoly’ positions in the market. As an added bonus, they generally also offer straightforward investment rewards. Today, we can shine a light on BT Group (LSE: BT-A).
BT has had its challenges, but at present it’s hard to fault the telco. To begin with, the stock has a beta of 0.75. That tells you, as the market starts to wobble at these heights, it’ll hold its nerve. That robustness could be due to the group’s financial strength. Despite flat revenues, BT has produced a net profit margin of almost 12%. That’s obviously due to cost-cutting, but it’s been necessary cost-cutting (in business if you’re not going forwards, you’re going backwards). BT’s return on assets is also sound — around 8.5% (in line with Vodafone). In addition, investors are staring down the barrel of strong dividend growth (over 10%). BT’s cash position could do with a little TLC but for all the right reasons — the company’s brave investment in sports broadcasting has seen a lot of cash disappear from the books.
I’m not a big fan of broker recommendations. Like anything else, though, it catches my eye when the majority of brokers are saying the same thing. As it stands, analysts at RBC Capital have an outperform rating, analysts at Jefferies Group have a buy rating, Credit Suisse has an outperform rating, 13 other separate brokers have given a buy rating and two have slapped a strong buy rating on the stock. BT has a consensus price target of 403.57, in case you were wondering.
For me, it’s all about media and sport for a company like BT. They’ve nailed that by going into homes and offering BT Sport. You can’t beat live TV. Forget all the online competition (especially from Apple and Netflix) in the recorded television space. BT offers a unique experience. If you’ve got the LIVE rights, you’re essentially untouchable.
If BT can keep costs down, continue to work on its core business, and successfully branch out into new media, I think it’s got this telco business covered.
Ultimately, two key aspects of BT Group give it enormous strength: it's in a dominant market position, and it has a strong brand. If you like the sorts of companies that exhibit these traits, take a look-see at a little pack the Fools have put together. It's a comprehensive list of 5 shares that you could retire on.
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David Taylor has no position in any shares mentioned. The Motley Fool UK owns shares in Apple. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.