Why I think it could be time to buy TPG Telecom Ltd and Vocus Communications Limited

Two shares which have dominated the headlines this week have been TPG Telecom Ltd (ASX: TPM) and Vocus Communications Limited (ASX: VOC).

TPG Telecom’s shares dropped 26% on Tuesday following the release of its full year results. The market’s focus was firmly on its outlook for the year ahead, despite it posting an incredible 88% rise in revenue to $2,388 million.

With the telco giant advising of higher capital expenditures and lower-than-expected growth in FY 2017, investors fled to the exits in their droves.

Then it was the turn of Vocus to grab the headlines on Wednesday. The shock resignation of its CFO Rick Correll led to a sharp sell off of its shares, dragging them lower by around 14% for the week.

Does this put the two telcos in bargain territory? Personally I think it does. Fortunately I’m not alone in this view either with research notes out of Morgan Stanley and Deutsche Bank this morning supporting this view.

Analysts at Morgan Stanley have rated TPG Telecom as overweight with a $10.75 price target. Even after factoring in slower EBITDA growth and lower-than-expected broadband margins, analysts see the company’s long-term growth profile as attractive.

With TPG Telecom’s shares up almost 5% today, it would appear as though investors have reacted very positively to the research note. At $9.03 there’s still ample upside potential left in its shares in my opinion.

Over at Deutsche Bank the investment bank’s analysts have placed a buy rating on Vocus with a price target of $12.01, a massive 92% higher than the current share price of $6.26.

Deutsche’s analysts don’t believe there is anything further to worry about following Mr Correll’s resignation. Furthermore they have highlighted merger synergies as being a catalyst to driving strong earnings growth in the future. As a result they have forecast earnings per share to come in at 40.2 cents in FY 2017.

Right now I believe both shares are likely to prove to be great long-term buy and hold investments. Considering Vocus’ shares are changing hands at just 15x forecast FY 2017 earnings, it might just be my pick of the two right now.

If you need to make room in your portfolio for TPG Telecom or Vocus then I would highly recommend removing these three wealth destroying shares.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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