The Motley Fool

Forget BT! I think this alternative investment has much better prospects

Image source: Getty Images.

I last wrote about telecommunications firm BT Group (LSE: BT.A) around a month ago in an article with the headline: “Why I think the BT share price could go to £1.”

At the time, the share price stood at 208p, but has since continued its long-established down-trend and the shares now change hands at close to 189p, as I write. So it’s getting there, and I reckon shareholders need just a little more patience before it touches £1!

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

A poor trading record

But it isn’t just because the stock has been going down that I stuck my neck out to attempt a price prediction. There are sound reasons for the collapsing share price. For a start, I reckon the dividend is a good candidate for an axing down the line.

BT’s five-year record reveals that cash flow per share has been falling, earnings have been slipping, and borrowings have been on the rise. Consequently, the dividend has remained mired in the mud. Progression? Forget it!

On top of that, BT is up to its metaphorical eyeballs in debt. Net borrowings stand close to £12bn, which works out at just under four times the level of last year’s operating profit. Then there’s a big pension deficit to fret about too.

Big debts can be excusable with vibrant, growing businesses – arguably, the borrowings help to enable the growth. But BT gives the impression of being a lumbering giant past its best.

Looking forward, City analysts following the firm don’t offer investors any cheer with their predictions of a further double-digit percentage decline in earnings for the current trading year and a modest two-or-three per cent uptick the year after that. Taken together and averaged, we are looking at earnings being well down for the next couple of years.

Cyclical threat

And we haven’t even had a decent general economic slump lately. Imagine the carnage one of those could inflict on BT’s business right now, or perhaps in a year or so’s time. BT should be flying, stock-piling incoming cash flow so it has the resources to get it through the lean times. But it isn’t. Overall, I think the enterprise and the stock look vulnerable, so I’m avoiding it.

Instead of BT, I see a better opportunity in an FTSE 100 tracker fund such as the Legal & General UK 100 Index Trust. The great thing about this tracker fund is that it gives you instant diversification across sectors and between around 100 underlying companies and their businesses. So you can wave goodbye to all the individual-company risk that comes with backing a single horse such as BT.

It pays to shop around because there are many FTSE 100 tracker funds to choose from, and by several different suppliers. But they all give you low-cost access to the market, and you can choose whether to reinvest the dividend income you’ll receive (accumulation version) or to have it paid to you (income version).

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Kevin Godbold has no position in any share mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.