The Telstra Corporation Ltd (ASX: TLS) share price, Commonwealth Bank of Australia (ASX: CBA) share price and Woolworths Limited (ASX: WOW) share price look expensive.
Indeed, I think that none of them is a 'buy' right now despite Telstra, Commonwealth Bank and Woolworths each offering dividends well in excess of term deposit interest rates.
Telstra
Earlier this week, Telstra reported a hefty fall in profit. It blamed competition in mobiles, structural challenges in broadband and fixed services (e.g. home phones), and an impact from the NBN – which they expect will suck $2 billion to $3 billion of operating profit away from the company.
The market didn't like the result and shares fell hard, despite the company announcing a hefty dividend of 15.5 cents per share, fully franked no less. While the dividend income is very appealing, I think Telstra shares are still quite expensive given its outlook. I'd look to buy shares around or below $4.
Commonwealth Bank
Commbank is Australia's biggest company and (a very profitable) bank. Obviously, it benefits from rising house prices because it means fewer people default on loans, there is more buying and selling activity, and loans get bigger and bigger and bigger… netting them more interest.
However, there is a growing chorus of analysts and economists calling for higher interest rates in the near future, which could see house price growth slow. While a crash is unlikely and in no-one's best interest, I think Commonwealth Bank shares have a lot of growth baked into their current share price. Although Commbank should be able to widen profit margins when interest rates rise, frankly, I think near future house price growth is increasingly unlikely.
Woolworths
Woolworths is in the middle of a turnaround and perhaps also a price war with its key rival Coles. Not only that, Aldi and Costco are continuing to make inroads for the two big players. Meanwhile, Woolworths has lost heaps of cash on Masters, which is now sold, and other ventures.
But while that's the bad news, there is also a lot to like about Woolworths. It has a new management team, it is focused on restoring its brand and appeal, and has a leaner business model.
Ultimately, however, I think the uncertainty around its turnaround strategy means that Woolworths shares currently trade around fair value. Therefore, I do not believe it is a standout buy.
