Shaw Communications Inc. trading in a range

May 23rd, 2012 – Comment

The most likely thing that would move the shares higher would be an event such as an acquisition or a takeover.


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Hi Lou,

I am interested to hear what you think about Shaw. I bought it at $21.32 and although I’m enjoying the dividend I’m wondering if the stock price will ever take off. I see there was another buy-back on Friday. If there is a bounce in the stock, would that be an opportunity to exit; or should I just stay the course.

Thanks,

Susan

 

Hey Susan,

I last examined the case for Shaw Communications Inc. (SJR.B TSX) on December 13, 2010. The shares were trading for $20.60 and Monty wanted to know my thoughts.

What I observed at the time was a range bound trading pattern with support at $18.50 and resistance at $23.50. The two issues that the company had been dealing with at that time was the integration of the CanWest Global acquisition and the earlier than expected retirement of Jim Shaw. What was noted was that the dividend was an an attractive 4.3% and that it was never a bad thing to earn better than average income while waiting.

A second round of due diligence may provide some of the guidance you are looking for.

 

The three-year chart illustrates the choppy trading within a shrinking range. Support comes in at $19.00 and resistance at $22.00. Currently the dividend is producing a yield of 4.7% which provides some comfort while waiting for better days.

The pattern on the stock does suggest that traders have been well served by the moves that have developed over the last year. The bounce off support at $19.00 in April of 2011 to resistance at $22.00 in July produced a gain of 15.7% for those who caught the ride. There was also a rise off $19.50 in February of 2012 to resistance at $21.50 in late March for another 10.25% gain. Not bad but also not for everybody.

 

 

The six-month chart depicts the buy and sell signals generated by the MACD and the RSI on the February 2012 advance. At the moment we can observe another bounce off of support at $19.00 with the MACD and RSI turning higher. I expect that the bounce will meet resistance along the 50- day moving average at around $20.50.

 

SJR.B is part of the oligopoly that controls the Canadian telecommunications sector and as such enjoys a number of barriers to entry into their space. The most likely thing that would move the shares higher would be an event such as an acquisition or a takeover. There have been rumours of a SJR.B acquisition of Corus Entertainment Inc. (CJR.B TSX) circulating since the Bell acquisition of Astral in March of this year. Other than that there are limits to growth given the competitive nature of their business and the erosion of pricing power that implies.

The best approach to owning SJR.B is to take advantage of trading opportunities and to collect the dividend.

Make it a profitable day and happy capitalism!

 

 

 

Categories: Telecommunications
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