On August 6, 2020, Barron's magazine published an article on Vodafone (NASDAQ:VOD) stating that the shares have bottomed based on the following reasons:
- The company has put together €1 billion cost cutting plan.
- Potential upside from introduction of 5G.
- Assets that they have marked for disposal could generate cash and dispose of under performing assets.
- The demand for data is exploding due to the lock down caused by the COVID-19 pandemic.
The company saw lower churn rates partly because of the pandemic driven lock downs. The company is also reaffirming its guidance and estimates that it will generate €5 billion in free cash flow. Germany is Vodafone's largest and most important market. It accounts for 34% of the company's EBITDA. Given that Germany has the virus under control, that market has been resilient through this global crisis.
Exhibit: Vodafone's Most Important Market is Germany
(Source: SeekingAlpha)
Looking at the charts, the shares have been range bound ever since it peaked at around $18.18 on June 8, 2020. Barron's may have a point. The stock may have indeed bottomed. The Bollinger Bands are tightening, which may indicate a sharp price move, but we do not know in which direction. If Barron's is right, that sharp move may be an uptrend. Ideally, I would be a buyer when the price is hugging or closer to the lower band. Currently the price is in the middle of the band. The Moving Average Convergence Divergence (MACD) is flashing a slight buy signal.
Exhibit: MACD flashing a moderate buy signal
I have placed a new buy limit order for Vodafone on $15.31. There's very less probability that I will get it at that price, but if I do I will report back on its performance when I sell.
(Disclosure: I own VOD)
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