Which telco stock is the best buy?

These 3 stocks may keep growing at alarming rates, don’t miss your opportunity to buy them now!

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Telecommunications stocks have had a great couple of years. From behemoth Telstra Corporation Ltd (ASX: TLS) right through to small-cap My Net Fone Limited (ASX: MNF), there is money to be made.

Since the industry has a number of macroeconomic tailwinds at its back, investors must position their portfolios for maximum growth by finding undervalued stocks. But with so much growth in recent years it can be hard to know what is worth buying and what should be avoided.

For income, it’s hard to go past Telstra. With healthy profit margins, growing overseas exposure and huge cash flows it’s likely that, over time, the board will approve dividend increases beyond the current forecast for 29 cents per share. Even at current prices it yields 5.3% with full franking.

Mid-cap retail telecommunications company M2 Group Ltd (ASX: MTU) is a standout value play in the sector. After years of acquisitive growth the owner of Dodo, Primus, Eftel and Commander brands appears to be getting on top of its debt and expanding into new product offerings whilst growing organically.

Trading on a trailing price to earnings ratio of 22, it may not scream value on first glance but once you consider its earnings are expected to jump to 57 cents per share in the next 24 months, it trades on a forward price earnings ratio of only 10. In FY14 it is expected to pay a dividend equivalent to 4.2% fully franked.

For high growth, small-cap infrastructure owner Vocus Communications Limited (ASX: VOC) is my pick of the bunch. With more people and businesses communicating internationally, Vocus’ huge network will provide the high speed and reliability demanded in the modern world. Trading on a forward price-earnings ratio of 28, Vocus shares don’t come cheap. However long-term investors can find value in the shares at current prices.

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Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies. 

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