Telstra Corporation Ltd and iiNet Limited: smart money stocks set for growth

Are Telstra Corporation Ltd and iiNet Limited positioned for future growth?

Follow business innovators with first mover advantage.

Darryl Daté-Shappard

I started investing after finding a copy of Peter Lynch's "Beating the Street" in the English book section of a library in Japan, where I was living at the time in 1997. Seeing that regular people can find investment ideas just as easily as professionals, I used the philosophy of that book to invest in stocks in Japan, and later in Australia after moving in 2001. I also have experience in property investing, and went on to complete my masters degree in Applied Finance at QUT in Brisbane. I follow the investment style of Peter Lynch, Phillip Fisher and Warren Buffett-- knowing what you invest in, doing your homework to keep up with a stock's story and holding a healthy skepticism of what the stock market calls "value".

Published June 24, 2014 11:22 am AEST

The one thing in life that is constant is change. Internet service providers (ISP) and telecom companies have to move at a swift pace to keep from falling behind. Constant growth and innovation is needed to stay ahead of the pack.

As an investor, you have to stay on top of the changes yourself to see what company is making headway and what others are starting to slip. Here are two that are leading in innovation and stand to grow their businesses and earnings.

iiNet Limited (ASX: IIN)

This $1.2 billion company is now the number two ISP in Australia. It holds about 25% of the NBN market and a 16% share of the broadband market.

After setting up a large free wi-fi network in Adelaide, it is now developing the country's largest free public wi-fi network in Canberra. Its strategy is to offer free wi-fi service so that users will become subscribers to its bundled services for broadband, mobile and home phone.

It has a decent 2.7% dividend yield and has more than doubled in share price in the last two years. Some analysts forecast earnings to rise about an average 9% annually over the next two years, which could translate to further share price gains.

Telstra Corporation Ltd (ASX: TLS)

The number one mobile and broadband service provider is searching out growth in overseas markets where it wants to establish itself as a telecom and business enterprise solutions leader.

Its subsidiary Telstra Global, which is headquartered in Hong Kong, has completed a network of global cloud hubs to provide worldwide IT and telecom services. In addition, it has also been chosen as the first partner with Cisco Systems Inc (NASDAQ: CSCO) to build what is projected to be the world's largest global network of cloud hubs.

Integrating itself into global business will expand its presence in Asia and beyond. It may still call Australia home, but it can maintain a strong rate of growth servicing largely populated countries and regions. The kicker here is Telstra's rock solid dividend, giving the stock a marvellous 5.5% yield that beats a regular bank term deposit rate.

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