It certainly has been a positive month for shareholders of Telstra Corporation Ltd (ASX: TLS). With its shares closing at $5.22 yesterday they have now managed to climb 6% higher in the last 30 days.
But despite this rally they are still around 11% lower than their 52-week high of $5.86. Does this make the $62 billion telco giant a bargain buy?
Whilst I wouldn't by any means class Telstra as a bargain buy at the current price, I do think it would be a good investment for income investors.
At present its shares are changing hands at 15x trailing earnings and expected to provide a fully franked 6% dividend in FY 2017 according to CommSec. I see this as being about fair value considering its forecast for low-single digit earnings growth.
Whereas the real bargain buy in the telco industry would have to be Vocus Communications Limited (ASX: VOC). Even after a big jump in its share price yesterday it is still priced at just 14x trailing earnings.
This is all the more surprising when you consider that at its AGM in November Vocus' management forecast low to mid-teen underlying earnings per share growth in FY 2017 thanks partly to impressive NBN market share gains.
With a growth rate of that level I would expect to see its shares changing hands at a premium to Telstra's and certainly not the other way around.
At this point in time if I could only invest in one of these shares I would have to opt for Vocus.
Although Telstra is a high quality and safe share to have in your portfolio, I believe the cheap price of Vocus' shares and its strong growth prospects means it will outperform its rival by some distance over the next few years.
