Tech stocks are always interesting to follow and in some cases can be can be quite profitable for investors. Telstra Corporation Ltd (ASX: TLS) and TPG Telecom Ltd (ASX: TPM) are up 45% and 201% respectively over the last two years.
However, that isn't the end of the story. Here are three reasons why you should like what both companies have planned in the near future. If you don't have a tech stock in your portfolio already, one of them may be a good addition.
Growing new networks
Telstra has international expansion plans that first will make it a bigger regional player in Asia. With largely populated countries like Indonesia and China modernising and growing their economies, Telstra's telecommunications expertise could attract strong interest for e-commerce and business enterprise services.
It has a multi-billion dollar war chest for acquisitions to buy larger business scale. Also, it will be developing cloud computing networks with other big-name tech and telecom companies like Cisco Systems, Inc. (NASDAQ: CSCO).
Likewise, TPG Telecom is moving forward with creating a broadband network called "fibre-to-the-basement" (FTTB) which could offer download speeds similar to the high-speed national broadband network (NBN). In urban areas it brings this to residences and businesses, making its wholesale and retail services more attractive to consumers.
Solid market appeal
Telstra is still the number one Australian broadband and mobile service provider. Its network range and mobile coverage is the most extensive, so customers wanting easy and uninterrupted communications will stick with the leader. This can give Telstra strong branding and pricing power to charge premiums.
Since TPG Telecom actually owns its network hardware infrastructure, it has cost and service advantages such as for mobile and broadband bundling. This can help maintain revenue growth and margins.
Financial strength
Earnings for TPG Telecom have been growing strongly over the past five years. Rising cash flows have allowed it to grow as well as pay down debt steadily. Its interim profit margin for first half FY 2014 was over 20% and net profit was up 15%.
For Telstra, its full year net profit was up 14.6%. It also announced a share buyback as well as an increase in its well-known dividend for a total $4.7 billion returned to shareholders.
The telco giant is in negotiations with the National Broadband Network Company for turning over the physical copper telephone network to roll out the NBN. Telstra could still benefit by receiving much of the ongoing annual maintenance work. That could provide a steady income stream as it expands into Asia.
Tech stocks can have very attractive growth, but you also want stocks that pay a steady dividend. Telstra, of course, has been doing that for years. It would be my pick of the two companies for a balance of long-term growth and income.
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