Should you buy shares of Woolworths Limited (ASX: WOW), Telstra Corporation Ltd (ASX: TLS), or both?
It's not an easy question to answer.
On the one hand, Telstra has proven to be a fantastic investment over the past five years, whereas Woolworths shares haven't done nearly as well.
In fact, excluding dividends, Woolworths shares have been unable to keep up with the broader S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) over the same period.
Woolworths
Woolworths is Australia's most profitable supermarket chain with 931 stores in total. Across both Food and Liquor, which includes retail brands such as Dan Murphy's and BWS, Woolworths served approximately 21 million customers per week throughout 2014. According to Brand Finance, Woolworths has boasted the most valuable brand in Australia since 2012.
Despite its reputation investors have heavily discounted Woolworths shares in recent times. Competitive pressures amongst supermarket operators and concerns over the Masters home improvement business have been front and centre in the financial press.
However, with shares down a whopping 27% over the past year alone, there's a strong possibility the selloff has been overdone. Indeed, Woolworths shares now appear good value and are currently forecast to pay a dividend equivalent to 5.1% fully franked (that's 7.27% grossed-up!).
Telstra
In a close second on brand value is Telstra. Under the leadership of former CEO David Thodey, Telstra reinvigorated its reputation for quality service. At the corporate level, it sold non-core assets and bolstered its capital position via an agreement with the NBN Co for the relinquishment of ownership of its 100-year-old copper cable network.
Now, under the leadership of CEO Andrew Penn, Telstra is targeting one-third of revenues from Asia by 2020 in a bid to capitalise on an anticipated surge in demand for telecommunication services over coming decades. Joint venture partnerships and the recent acquisition of subsea cable operator Pacnet is an example of the likely growth strategies Telstra will employ throughout the region.
Although it's enjoyed moderate success to date, Telstra's International division is still in its infancy. Moreover, overall group profit is expected grow at mid-single digits in the near term. At their current price Telstra shares change hands at 18 times profits per share and at a fully franked dividend yield of 4.9%.
Buy, Hold or Sell?
Personally, I'm bullish on the prospects of both Woolworths and Telstra shares over the next three to five years. However, as a net buyer of shares I find more value in Woolworths shares at today's prices than I do in Telstra's. I'm waiting for Telstra shares to drop in price before hitting the buy button but would gladly add Woolies to my portfolio today.
