If you're looking for defensive options during this market volatility, then Telstra Corporation Ltd (ASX: TLS) shares could be for you.
That is the view of analysts at Goldman Sachs, which have just reiterated their conviction buy rating and $4.20 price target on the telco giant's shares.
This price target implies 31% upside over the next 12 months excluding dividends. If you include its fully franked dividends, this potential return increases to ~36%.
Why does Goldman Sachs like Telstra?
Goldman Sachs believes the telco sector as a whole is a good place for investors to look during the coronavirus crisis. It also has buy ratings on NEXTDC Ltd (ASX: NXT) and Vocus Group Ltd (ASX: VOC) shares.
It notes: "Given the annuity style earnings of the telco sector, and lack of correlation with consumer household expenditure and GDP growth, we believe the virus impact is likely to be much less significant vs. the broader economy."
That doesn't necessarily mean there will be no impact.
Goldman explained: "Key areas of impact include (1) less managed service revenues; (2) customer decision deferral or supply chain issues impacting Enterprise growth; (3) reduced mobile roaming revenues; (4) less mobile/fixed re-contracting and associated hardware sales; and (5) mixed cost impacts."
However, the broker doesn't expect it to be enough for Telstra to fall short of its guidance range in FY 2020.
The broker concluded: "Our top picks in the telco space are Telstra (Buy, on CL), Vocus (Buy) and NextDC (Buy). In an uncertain macroeconomic environment, we like the defensive and recurring nature of telco earnings. Following the recent correction, valuations are also more attractive, with: (1) TLS yield spread vs. 10Y AU bonds of 4.73%, 169bps above its recent avg."
I think Goldman Sachs is spot on with this and would be a buyer of Telstra's shares. Especially if I were an income investor.
