As markets look to sag in August and September, Canadian investors shouldn’t be inclined to panic sell. Undoubtedly, 2023 has been a year of relief, and a correction can be a good thing, especially if you’re a beginner investor with cash on the sidelines.
Remember, when the stock market goes down, your average stock gets cheaper and less risky. Indeed, stocks seem to be viewed as riskier after a substantial broader market pullback. But assuming all is well at the company-specific level, you may just be able to catch Mr. Market off guard as he goes from euphoric back to depressive.
Right now, market sentiment has shifted in a big way. Telus (TSX:T) stock, which has been in a world of pain well before the August slump, has continued to be a weak performer. At the time of writing, T stock is at lows not seen since the tough days of 2020. Undoubtedly, Telus stock has its fair share of idiosyncratic issues. However, the telecom industry has just been crumbling under the heavy weight of recent interest rate increases lately.
Tough sledding for Telus stock could continue
Add the less-than-favourable macro forecast (recession could hit in the near future) into the equation, and it’s no mystery as to why Canadian dividend investors are so easy to throw in the towel on telecom dividend darlings such as Telus.
Some damage at the hands of rate hikes is deserved. Telus (and its peers) need to spend a lot of money to keep improving its infrastructure. New 5G telecom tech does not come cheap. As rates stay at these heights, it’s hard to imagine Telus stock catching any sort of break. Though catalysts may be lacking, Telus stock’s selloff has overextended to the downside.
Telus stock looks overly punished after having shed a third of its value from its 2022 peak of $34 and change. Should it have surged to such heights? Probably not. Valuations in Telus stock (and just about every other play) were a tad stretched back then. Nowadays, the tables have turned, and it’s hard to find anyone remotely bullish on the name.
Contrarian income investors: Telus stock is absurdly cheap
If you’re a contrarian who finds the dividend enticing, I say go for Telus stock right here, right now. If the stock falls further (perhaps below the $22 mark), I say be ready to buy more. For new investors, I’d argue Telus stock is one of the market’s most intriguing buy-the-dip candidates.
The 6.32% dividend yield is swollen from a historical standpoint. And though it’s not as impressive, given today’s risk-free rate, I’d argue that the risk/reward favours the “risky” telecom as it begins to trade as though it’s going out of style!
The Foolish bottom line
Can things get worse for Telus? Sure, but so much negativity is priced in after a 33% drop from peak to trough. Once rates begin to peak and eventually retreat, Telus stock could find itself flirting with the $30 level again. For now, I think investors just have to hold their noses and start buying. It’s a quality, high-yield, blue-chip stock that’s way too oversold, in my view.
