Qantas Airways Limited (ASX: QAN), Telstra Corporation Ltd (ASX: TLS) and Woodside Petroleum Limited (ASX: WPL) are three iconic companies at the top of many Australian investors? watchlists. No doubt there are some who would be contemplating adding one, or more, of these stocks to their long-term portfolios. However, I feel that none of the companies are a bargain at today?s prices. Here?s why.
Woodside is Australia?s biggest independent oil and gas company with a market capitalisation of nearly $35 billion. Over many years, Woodside?s success has stemmed largely from its ability to take on, and complete,…
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Qantas Airways Limited (ASX: QAN), Telstra Corporation Ltd (ASX: TLS) and Woodside Petroleum Limited (ASX: WPL) are three iconic companies at the top of many Australian investors’ watchlists. No doubt there are some who would be contemplating adding one, or more, of these stocks to their long-term portfolios. However, I feel that none of the companies are a bargain at today’s prices. Here’s why.
Woodside is Australia’s biggest independent oil and gas company with a market capitalisation of nearly $35 billion. Over many years, Woodside’s success has stemmed largely from its ability to take on, and complete, big projects such as North West Shelf. However, investors are currently wondering where its next wave of growth will come from.
That’s because the company recently pulled out of the running for the giant Leviathan gas field off the coast of Israel and the huge Browse FLNG project is shaping up to be very expensive. What’s more, the institutional shareholders’ decision to block management’s proposed buyback of shares from rival substantial holder, Shell, means the global energy giant will be forced to take other means to sell its stake, providing even more uncertainty for retail shareholders.
I think Woodside’s management team is first-class but, given the amount of uncertainty moving forward, its share price is simply too expensive to justify a ‘Buy’ rating right now. I think it is a ‘Hold’ at best.
Some investors are impartial to the fact that the Flying Kangaroo operates in an incredibly competitive market with premium prices yet little, if any, advantage over its rivals. With an operating margin of less than 12%, return on equity and capital of less than 5% and an even worse net profit margin, Qantas is best left for the traders. If you want a better high-risk/high-reward investment from an ASX-listed company, I recently identified three micro-caps with much larger upside potential than Qantas, in this article.
Telstra Corporation is an excellent company with a bright future ahead. The problem is, everyone knows it. As a result, it trades on rather lofty valuation multiples. In years ahead, machine-to-machine communication, cloud computing, networked devices and unified communications will play a bigger part in our everyday lives, benefitting Telstra’s shareholders. The group’s Networked Application Services (NAS) and International divisions hope to capitalise on this megatrend and will become the group’s most lucrative divisions in years ahead.
Therefore, despite its high valuation, I think Telstra is a ‘Hold’ at today’s prices.
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Telstra is my favourite blue-chip stock on the ASX because of its defensive qualities and modest but sustainable, growth potential. However there’s two reasons it’s not in my portfolio.
1. It’s expensive, and;
2. It’s a $67 billion company. So there’s little chance of its share price doubling in the next 10 years.
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Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in the companies mentioned.