It has been raining knives in the Singapore market this week with losers outnumbering winners by a hefty margin. Although Real Estate Investment Trusts were notable fallers, this week’s falling-knife spotlight falls on M1 (SGX: B2F).
Singapore’s smallest listed telecom company was the unfortunate victim of a broker downgrade by association. In other words, M1 was not the target of a direct downgrade but its peers were.
Shares in the M1 slid 6% at the time of writing this week to S$3.05 after brokers cut their outlook for its two peers SingTel (SGX: Z74) and StarHub (SGX: CC3). Meanwhile, SingTel fell 5% to S$3.75 and StarHub lost 4% to S$4.
It seems that the number crunchers reckoned that telecom shares have gone up too much too quickly, which has driven down dividend yields to below 5% for both SingTel and StarHub. The analysts were also fretting that earnings at the two companies may not grow as quickly.
As investors we need to careful about reading too much into broker recommendations. As a simple person, I can easily grasp the concept of “buy” and “sell” recommendations.
To me, a “buy” means that the shares probably look cheap so it might be a good opportunity to acquire some if you like the company. The opposite of a “buy” is a sell, which means that you might consider getting rid of the shares because they could be overvalued.
At a push I can even understand a “hold”. It means the shares are neither cheap nor expensive but, perhaps, somewhere in between. So it might be a good idea to sit on hands and wait and see.
But what does it mean when a share or sector is downgraded from overweight to neutral? Perhaps one day someone will be kind enough to explain to me how a “hold” rating differs from “neutral”, “weak hold”, “strong hold” and “equal weight”.
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