Who Would Invest in Telstra?

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In today’s ASX Watch, we’re going to analyse Telstra Corporation Limited [ASX:TLS].

You know Telstra. It’s a telecommunications and technology company, whose core business is providing mobile and internet services to people all over Australia.

What is the company strategy?

In 2018, Telstra launched its T22 strategy, which aims to simplify the business and reduce expenses.

Telstra wants to maximise its current infrastructure dominance. And with the latest shift in 5G on its way, Telstra is making ambitious changes.

Is there a potential catalyst to send the share price higher?

I’d say yes. Here’s why.

On 14 February, Telstra released its half year results. There were two primary highlights.

Firstly, Telstra added 239,000 new mobile customers. That was a 2.1% year-on-year growth. Secondly, Telstra reduced costs by $162 million.

The growing awareness around the rollout of the new 5G network — and the potential for new revenue streams — means Telstra investors can expect additional growth.

Who would buy Telstra?

Investors are always looking for quality blue-chip shares. And Telstra fits that bill, as it sits in the top 20 stocks on the market in terms of size.

Many self-managed super funds invest in Telstra. It has a history of paying high dividends, which makes it a favourite of retail investors. Telstra suits an income-focused portfolio.

What do the fundamentals suggest?

There are three key areas that I am looking at: Price to earnings (PE), earnings per share (EPS) and the dividend yield. Here are the basics:

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  1. Telstra has a PE ratio of 12.7. The market average is 16.3. That suggests TLS is undervalued compared to the market.
  2. Telstra has an EPS of 21.2 and a forecast EPS of 25.1 for 2020. This means analysts expect growth within the next 12 months.
  3. Telstra is still paying a dividend. Currently, the dividend yield is 4.7%.

What does technical analysis suggest?

The final step is to look at the company chart (see below). I have added two indicators to the chart: A 50-week moving average (MA) and a 200-week MA.

Source: Optuma

Moving averages assist you in smoothing out volatility. The key is to look for the share price to be above the MA. We can see that Telstra is currently trading above both the 50-week and 200-week MAs.

Should you invest in this stock?

Investing in Telstra should work for an investor with a medium- to long-term timeframe and whose primary focus is to obtain dividends, not large capital growth. If that sounds like you, Telstra may be one for your watch list.

Until next time,

Jim Rickards Signature

Jonathan Evans,
Analyst, Profit Watch

Disclaimer: This is not an endorsement to buy or sell Telstra Corporation Limited [ASX:TLS]. It is an update only.

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