BROKERS’ NOTES: Buy Nasdaq 100, sell Telkom

Shaun Murison, senior market analyst at IG Markets

BUY: Nasdaq 100

After significantly underperforming the broader equity market in 2022, the Nasdaq 100 Index has enjoyed a reversal of fortune this year. The index, which represents the top 100 US-listed technology companies, has gained nearly 15% in the first quarter of the year, far outperforming its Dow Jones Industrial and S&P 500 peers.

Concerns over a mini banking crisis have started to tame rate expectations in the world’s largest economy. The US does look to be near the top of the monetary tightening cycle and these assumptions are fuelling some sector rotation out of financials and back into selected “growth” stocks, several of which are represented in the Nasdaq 100 Index.

Investors might be hard-pressed to find more robust opportunities than those companies which make up the heavier weightings within the index, including Microsoft, Apple, Alphabet, Nvidia and Amazon. Investors can gain access to the Nasdaq 100 through exchange traded funds.

 SELL: Telkom

Telkom has outperformed its sector peers Vodacom and MTN in terms of total returns for the year to date (2023). Recent gains, spurred in part by on-off merger talks, have sent the share price ahead of what is currently suggested as a longer-term fair value for the stock.

At the time of writing, the share price of Telkom is trading at R35.72, a 6.4% premium to the mean of analysts’ long-term price targets (as polled by Refinitiv data).

Yet Telkom’s earnings outlook is less attractive than those of its sector peers, while forward valuation multiples suggest the share may be more expensive as well.

There is a lot of corporate activity about Telkom these days as it looks to restructure and unbundle assets, with the added possibility of future merger and acquisition talks coming into play. These scenarios pose increased volatility risks.