Telstra Corporation Ltd shares are at a five-year low: Time to buy?

On Thursday the Telstra Corporation Ltd (ASX: TLS) share price continued its poor run and sank to a five-year low of $3.26.

With the market likely to drop notably lower again today following President Trump’s China tariff plan, there’s every chance that the telco giant’s shares could drift to yet another new low this morning.

Is this a buying opportunity?

I think it is. I suspect the recent weakness in Telstra’s share price has been in relation to Labor’s proposed changes to franking credit refunds. A number of popular dividend shares have been hit as investors try to adjust their portfolios to suit the changes.

While thinking forward is a good thing in markets, I think it is far too soon to consider such action. After all, the election is not until next year, Labor is not guaranteed to win, and any changes would take time to be approved and implemented.

I’m not alone in thinking that this is a buying opportunity. Two broker notes over the last few weeks have labelled Telstra’s shares as a buy.

The most recent one, from Deutsche Bank, gave Telstra a buy rating and $4.05 price target. At the last close price this means a potential price return of 24% for its shares over the next 12 months.

If you add in Telstra’s planned 22 cents per share fully franked dividend, this becomes a potential total return of almost 31%.

Another broker that is even more bullish on the telco giant is Morgans. It has an add rating and $4.12 price target on its shares.

Morgans appears pleased with Telstra’s cost cutting progress and expects wholesale NBN prices to drop significantly in the future. This would mean that the company isn’t faced with as large a gap in its earnings as first feared.

I agree with Morgans on this and think investors ought to consider snapping up shares ahead of rivals TPG Telecom Ltd (ASX: TPM) and Vocus Group Ltd (ASX: VOC).

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited, TPG Telecom Limited, and Vocus Communications Limited. 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 Scott Phillips.

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