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Telstra Corporation Ltd, Coca-Cola Amatil Ltd and Rio Tinto Limited: Should you buy?

In the midst of earnings season, investors are able to sought the good from the bad and make much clearer assumptions about the current state of a company. So far, the spread of good and bad results appears to be around 50:50, with the S&P/ASX200 Index (INDEXASX: XJO) marginally higher (0.31%) since the beginning of August.

Three companies every investor has been watching are Telstra Corporation Ltd (ASX:TLS), Coca-Cola Amatil Ltd (ASX: CCL) and Rio Tinto Limited (ASX:RIO).

Telstra, who reported an impressive 14.6% increase in net profit year-on-year, has witnessed its share price rise 5.6% since August 14. Telstra has, in recent years, performed exceptionally well for both income and growth investors. Its FY14 report included some promising results which bode well for the near future, including a $1 billion off-market share buy-back, full-year dividend increase to 29.5 cents per share and $7.5 billion in free cash flow.

Longer-term Telstra is targeting growth in Asia but will continue to dominate the local telecommunications market, with increased investment in projects such as its rollout of a nationwide Wi-Fi network.

However, as with any stock, price is what you pay and value is what you get and I think Telstra’s current share price leaves much to be desired. It trades on price-earnings growth ratio of 10 and price-book ratio over 5!

Coca-Cola Amatil (“CCA”) has been on the receiving end of negative investor sentiment, with its shares falling 5% since its results were released just two days ago. The price movement comes despite a mostly expected profit downgrade from the beverage manufacturer.

One reason for its significant fall could be its bleak outlook for the remainder of the year. CEO Alison Watkins said: “While it’s too early for full year guidance, we expect earnings for 2014 to be materially below 2013. Second half earnings however should exceed first half, before significant items.” Its interim net profit was $182.3 million, down 15.6% from a year earlier.

Although I’ve been increasingly bullish on CCA’s ability to improve its operations over the long term, this week’s result highlight the difficulties Ms Watkins faces in turning the ship around.

Lastly Rio Tinto, like its peers Fortescue Metals Group Limited (ASX: FMG) and BHP Billiton Limited (ASX: BHP), announced some impressive earnings. It reported a 21% increase in underlying earnings during the half-year, raised its dividend and surpassed a number of cost-cut and capex goals it set for itself just a year earlier.

As Australia’s largest iron ore miner, Rio boasts extremely low cash costs of just $20.40 per wet metric tonne of ore produced so the recent spot price falls will not have the impact on earnings which many investors expect. Conversely, Rio expects the recent price falls will put its higher-cost competitors out of business and offset some of the increased supply coming online from the three major Australian miners, and Brazil’s Vale SA (ADR) (NYSE: VALE).

However, in the long term I believe Rio is likely to increase earnings from its other divisions, including copper and aluminium. Particularly as it pursues growth from existing projects such as Oyu Tolgoi, Grasberg and the South of Embley project in Queensland. With shares well priced, I think Rio is a good buy for long-term income and growth investors.

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Motley Fool Contributor Owen Raszkiewicz shares is long $47.63 Dec 2017 Warrants in Rio Tinto and is long $5.61 June 2016 Warrants in Coca-Cola Amatil Ltd. To learn more about warrants, click here

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