Share market not so hung up on Telstra

Countryman

After months of investors targeting defensives, safety and yield, a small window of relief from the euro region recently saw a switch to back to growth stocks and the mining sector.

Last week, Taking Stock noted with caution that the investment herd had been chasing yield in favour of growth for some time and that the strategy was becoming so 'crowded' that some stocks were potentially being driven beyond their true value.

It only took slightly unexpected results from company reports and the trend unwound quickly.

The rotation was highlighted by two company reports - one came from Rio Tinto (RIO), which fractionally beat expectations, and the other from a slightly below-par result from Telstra (TLS).

Although Telstra reported reasonable numbers just marginally below expectations, it was clear that the market was hoping for 'perfection' and was sold off to the point of falling over 8 per cent in four days.

With a 14 cent plus franking dividend due shortly, this fall could be surprising to holders but remember that it was not too long ago when it was hard to get anyone to buy it at $3.

Telstra investors need to keep in mind that international holders do not receive franking so it can be beneficial for them, especially when a stock has had a significant run, to sell the stock before the dividend with the view to buying back after the dividend and franking have been paid.

On the flip side to Telstra was Rio Tinto's first half earnings, which beat consensus by the slim amount of 4.3 per cent. The result was that the share price put close to that amount on the following day - again, a slight surprise caused the market to react sharply. RIO also increased its dividend, something that many analysts have been calling for from the big miners to make them more appealing to investors.

While many investors have been buying low-growth stock offering yields around 6 per cent, the higher-growth stocks have all moved considerably beyond that figure from their lows in the past three weeks - BHP (+10 per cent), WPL (+15 per cent) and RIO (+13 per cent).

What this tells us is that the current market conditions are all about timing.

No matter what the stock, expecting a complete recovery and ongoing price rises is unlikely. When it looks too good, it generally is - so lock in profits, be happy to go to cash from time to time and monitor closely for where the next move will come from.

·If you would like to subscribe to Adam Farrall's weekly market update, contact him at Sentinel Stockbroking on 9225 0020 or email afarrall@sentinelgroup.com.au

_Information contained in this article does not consider your personal circumstances. You should consult a stockbroking professional before making any investment decisions. Sentinel may hold positions in stocks discussed from time to time. _

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