With mixed results from Telstra Corporation Ltd (ASX: TLS), Westpac Banking Corp (ASX: WBC) and Coca-Cola Amatil Ltd (ASX: CCL) over the past year, it can be tough to know whether they are a 'Buy', 'Hold' or 'Sell'.
But before I give you my two cents on the investment prospects of each, it's important to note that I am a long-term investor and my opinion may differ from fund managers and agencies who have to meet certain benchmarks and set 12-month price targets. Usually, to make things simple for clients to understand, they'll rate stocks as, for example, "underperform" or "overweight".
Meaning, they expect a particular company's stock price to either lag behind the S&P/ASX 200 Index (ASX: XJO) (INDEX: ^AXJO) or beat its return in the next year.
I'm not interested in making predictions such as those. I'd rather be generally correct than precisely wrong.
Telstra Corporation Ltd
In the past three years, the stars have aligned for Telstra as its management have been busy positioning the telco for the new age of telecommunications and technology. For example it recently relinquished its right to Australia's number one copper cable network, for a large fee, to the government's NBN Co. It has also divested it legacy Sensis Business and sold its Hong Kong mobiles business, CSL.
On the other hand, it successfully listed its Chinese automotive website, Autohome, on the New York Stock Exchange (NYSE), recently announced it would rollout a nationwide Wi-Fi network and CEO David Thodey said he wants the telco to draw one third of revenues from overseas by 2020.
Whilst all this was happening, interest rates started dropping and demand for big dividend stocks (like Telstra) grew exponentially.
Despite the possibility that Telstra could reach $6.00 per share or, "outperform" the index in the next 12 months, at $5.45 per share, I do not believe Telstra is a bargain at today's prices. However, given its growth potential and generous fully franked dividend, I think current shareholders should keep their holding, at least for now. I believe it deserves a hold rating.
Westpac Banking Corp
Similar to Telstra, Westpac shares are a beneficiary of falling interest rates. Westpac, along with its banking peers, has an implicit guarantee whereby the government would come to the rescue of our big banks in times of trouble. This is because they're systemically important to the domestic economy.
As Australia's second biggest bank, Westpac controls 23% of home loans and 19% of business banking. At 31 March 2014, it had 12 million customers.
With Westpac shares up around 60% in the past three years, yet very little earnings growth expected in the next few years, I do not believe Westpac deserves its current price. With an aim to beat the market's return in the long run (not year-to-year), I think money held up in Westpac shares could be better spent elsewhere (I provide a better alternative below). Unless you've held Westpac for a long time (and your sitting on double digit dividend yields plus franking), I rate Westpac as a sell.
Coca-Cola Amatil Ltd
It has been a tough couple of years for CCA shareholders. With earnings downgrades and writeoffs across the business, it was forced to ask the government for a handout to save jobs. As a result, its shares are down 29% in the past year.
Rather than looking at this as a bad thing, in my opinion, long-term investors could take the opportunity to purchase shares in Australia's, Indonesia's and New Zealand's exclusive Coca-Cola bottler at a significant discount. With competent managers, strong brand recognition and solid growth prospects, CCA will likely move past its current headwinds and emerge a stronger company.
At today's open price of $9.25 per share, it is forecast to pay a 4.9% dividend in the next year and trades on a forecast price-earnings ratio of 16.5. I think CCA is a buy at today's prices.
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It never makes me many friends for saying Westpac is a sell and, now, it'll probably be the same for my rating on Telstra. However, investors need to objectively reassess their portfolios frequently and decide the best times to buy, hold or sell a particular company.
For example, although I missed Telstra's biggest gains (I sold my holding in August 2013) I moved into stocks which have proven to be much better investments. Now, I've got my eye on another ASX dividend stock but you won't find it in this article!
