I remember at the time of the first Dotcom Bubble 14 years ago, that a new fad amongst technically minded investors was that of stock screening. In fact, it wasn’t rocket science, but simply meant you would use what was then new software with your Windows ME to find stocks which might be attractive to buy according to filters you had created.
For instance, you might want to search for FTSE 100 companies with a dividend yield of more than 5% with a price earnings ratio of under 10. These would be classified as “Value Stocks.” Given that I recently wrote about the blue chips which currently yield the most in the FTSE 100, it seemed appropriate to look at the most lowly rated on a p/e basis.
The question is whether from a charting basis the likes of Vodafone (VOD) and Royal Mail Group (RMG) with p/e’s under 3 and Centrica (CNA) at 8.5 appear to be worth going long on a technical basis at the moment?
At least what can be said currently about the FTSE 100’s most lowly rated stock Vodafone, according to the “King of Ratios”, is that few would deny that over the recent past there has not been a significant de-rating. This is even though the shares are sporting a chunky dividend of 5% and we are supposed to believe that an even bigger player such as AT&T (T) from the U.S. could be interested in buying the UK mobile telecoms giant.
While this may be the case, in recent weeks we have seen the shares struggle even after the post February decline from 250p plus. Happily, there are now the first real signs of lasting recovery given the way it is possible to draw a rising trend channel on the daily chart from the end of May. Added to this is an extended uptrend line from the middle of June within the RSI window.
This feature along with the latest break back above the floor of an early August exhaustion gap to the downside at 195p suggests that we have a decent reversal set up to the upside. The favoured scenario now is that at least while there is no end of day close back below the 195p level we could see progress within the rising trend channel from May as high as 218p / the 200 day moving average over the next 4-6 weeks.
Royal Mail Group (RMG)
Royal Mail shares have been something of a “hero to zero” situation, even within the relatively short space of time they have been on the stock market. We have run the gamut of a company which was apparently sold off too cheaply, with the taxpayer losing out on £1 billion, and now being shorted down to the ground on competition fears. Presumably, at some point soon a balance in terms of the valuation will be found, especially given the historic p/e under 3.
As far as the charting picture is concerned it would appear we are looking at a situation whereby August resistance to date at 447p has come in well below former July support at 460p. This failure to overlap the former floor of last month suggests ongoing weakness for Royal Mail shares and the risk that while below 447p on an end of day close basis we shall see a retest of the worst levels of the year to date just below 400p during September.
It would appear that shares of British Gas owner Centrica have been and remain something of a sitting duck for those who complain that energy companies have something of a penchant for taking advantage of their customers. While this may be the case, this is a form of indirect taxation that for some reason there seems to be no hurry to change amongst the powers that be.
The good news from a technical perspective is that there appears to be some positive momentum coming in for the stock after three recent probes below 305p since the beginning of last month. This along with an April RSI resistance line break would suggest that while there is no end of day close back below the gap floor of last week at 309p we could seen an intermediate rebound for the shares back towards the 200 day moving average – at 326p – over the next 2-4 weeks.
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