Pop Quiz: When you search for stocks to buy, what traits do you find most appealing?
a) A big dividend yield
b) Growth potential
c) Deep value; or
d) All of the above
If – like me – you know the answer is always, all of the above, you've likely looked at buying shares of Woolworths Limited (ASX: WOW), Telstra Corporation Ltd (ASX: TLS) and Westpac Banking Corp (ASX: WBC) at least once or twice.
And why not? Over many years, stocks in these three companies have proven to be fantastic investments for those seeking income, capital gains, value or, all of the above.
However, despite their past successes, so far in 2015 each of them have underperformed the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO).
So could this be your chance to snap up a bargain or there is something else going on?
Let's take a quick look at Woolies, Telstra and Westpac to see which one's right for you… if any!
Woolworths
As Australia's most profitable supermarket chain, it's not every day you can buy Woolies stock for a price below that of the broader market average. However after falling 23.5% over the past year savvy investors can do just that. Indeed, Woolies shares have now moved into a much more compelling valuation range. Loaded with a current 4.8% fully franked dividend yield, it could be a great buying opportunity for long-term investors focused on income in a record low-interest rate environment.
Westpac
Westpac had seen its share price rise strongly in 2014 on the back of record profits and a robust economic outlook. However down 16% over the past month alone, investor enthusiasm for Westpac shares has clearly soured, and rightly so. Looking ahead the medium-term forecasts for unemployment, credit growth and as Westpac CEO Brian Hartzer put it, "intense competition", in the banking sector do not bode well for outperformance of Westpac shares. Personally, I'm avoiding Westpac shares for the time being.
Telstra
As the leader of Australia's telecommunications industry, Telstra is in a league of its own. With a market capitalisation more than 10 times its closest rival, Telstra has invested heavily in infrastructure, new growth areas and paid big dividends to shareholders over the past five years. Although it is undoubtedly one of the best income stocks on the market it's hard to envisage Telstra shares beating the ASX200 from today's prices after more than doubling over the past five years. I'm on record as saying I'd consider buying Telstra shares around $4.00. Currently priced at $6.18 I think Telstra is a hold.
Buy, Hold or Sell?
I'd rate Westpac as a sell today given its high share price and subdued growth outlook, but I'd happily hold Telstra for its reliable dividend yield and modest long-term capital gains.
