Shortlisted – Telstra caution and earnings buys

Editorial director of Switzer
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We’ve been talking a lot about Telstra lately. Last week Charlie Aitken loved it in his European vacation themes and James Dunn also suggested it was a great buy on Gen Y tastes.

“I still think Telstra will be a $6.00 stock over the next 12 months as earnings and dividend upgrades come through and the market pays a higher multiple each day for a stock the increasingly digital economy simply can’t open for business each day without,” Charlie said.

Way back in 2012, Switzer Super Report expert Paul Rickard said Telstra was on the way up towards $5.

“Assuming the Telstra Board doesn’t do anything mad like go on the acquisition trail, I think we will see shares reach $4.50 within a few months and over the medium term, a move up towards $5.00 is not out of the question,” he said in October 2012.

Paul has been tracking it upwards over the past two years, urging readers to buy on dips in February and April.

Charlie called his $6 target on Telstra back in April too.

Telstra (TLS)

Source: Yahoo! 7 Finance, July 28 2014

But perhaps it’s now getting a bit toppy. There is no doubt that Telstra is the Internet giant of the future. But the question is whether or not that is already priced in. Paul is concerned that it is well past buy territory and starting to look expensive. It’s not time to sell but definitely time to keep a close watch.

Earnings season

As we head into end of year earnings season for companies, SSR expert and founder of FN Arena, Rudi Filapek-Vandyck, is expecting a “schizophrenic” period.

“What is happening so far is that earnings expectations for Australian companies in general have held up quite well for the year, which is usually a positive, but they have been falling over the past two months leading into reporting season and that is normally a bad sign,” he said on Switzer TV last week.

But don’t worry too much, overall results and announcements shouldn’t be too much of a disappointment.

“This year I don’t think it’s going to be bad,” Rudi says.

When asked to list companies that might surprise, Rudi preferred to focus on stocks where earnings results ultimately won’t matter to share price, like BHP.

“BHP is going to have a good year now but they are looking forward to a negative growth year. That’s not necessarily going to keep the share price down,” he said.

A fall in the Aussie dollar should help BHP, as will the share buyback, which is now back on the table after some good production results.

Rudi also reiterated his call on his oil and gas favourites – Origin and Santos.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

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