Shares of the blue chip TPG Telecom Ltd (ASX: TPM) appear good value to me, while the Woolworths Limited (ASX: WOW) share price trades in excess of a good price to buy.
TPG Telecom
TPG Telecom is the name of Australia's third-largest telecommunications company. It also owns the brand iiNet.
By offering superb value to its broadband and home phone subscribers TPG Telecom was able to eat away at the market share of its larger rivals like Telstra Corporation Ltd (ASX: TLS) and Optus. It has grown its profits at a superb rate.
A recent and swift fall in the price of its shares appears to have brought TPG Telecom back to earth. Yet, its valuation has improved.
Indeed, while the company is attempting to tackle the mobiles market and grow its brand in Singapore — which are higher risk strategies — I think the company is still very high quality. So the falling share price has improved the risk-reward tradeoff for buyers.
At today's prices, the company's shares change hands for 12 times its profit and at a 2.8% dividend yield, which I think is compelling.
Woolworths
Like TPG, the recent years have been anything but smooth sailing for Woolworths. Australia's leading supermarket operator, which also owned Masters home improvement stores, has been structurally challenged by complacent management and increasing competition.
However, the closure of Masters and the company's decision to focus on its supermarkets appears to have pleased investors. The company's share price has bounced back 16% over the past year.
At today's prices, however, I think the company is no longer a standout buy. While I wouldn't be surprised to see its profits go higher in the next few years, I think the company deserves a price (read: valuation) slightly less than its current market price of $27.
So although it is forecast to pay a dividend of 2.86% fully franked, I think our investment dollars can be better spent elsewhere.
