The Vocus Group Ltd (ASX: VOC) share price was a strong performer on Monday. The telecommunications company started the week with an impressive 10% gain to $2.77.
Also rising on Monday was the Telstra Corporation Ltd (ASX: TLS) share price. The telco giant's shares ended the day 3% higher at $3.20.
It appears as though investors are becoming increasingly attracted to the telco sector due to its defensive qualities in these uncertain times.
But which telco should you buy? Telstra, TPG Telecom or Vocus?
At this stage my preference is Telstra. I think that it is the best option in the sector due to its leadership position, attractive valuation, generous yield, and positive outlook.
However, both Telstra and Vocus could prove to be good options at current prices according to analysts at Goldman Sachs.
According to a note out of the investment bank, it has just reiterated its buy rating and $3.90 price target on Vocus' shares. This price target implies potential upside of almost 41% over the next 12 months.
Whilst the broker expects Vocus to fall a touch short of its guidance in FY 2020 ($356 million vs. guidance of $359 million to $379 million), it believes the selloff of its shares has been overdone.
Especially given the earnings tailwinds in its Network Services division. It believes this division is well-placed to grow its earnings from existing customers in the current environment due to many people working from home.
What about Telstra?
Goldman Sachs is equally positive on Telstra at current prices. It recently reaffirmed its conviction buy rating and $4.20 price target on its shares.
This price target implies potential upside of 31% over the next 12 months excluding dividends. Including its 16 cents per share fully franked dividend, this potential return stretches to over 36%.
The broker likes Telstra in this uncertain macroeconomic environment due to its defensive and recurring earnings. It also notes that the yield on offer with its shares is materially higher than 10-year Australian treasury bonds.
Finally, Goldman is less positive on TPG Telecom Ltd (ASX: TPM) even after making good progress with its proposed merger with Vodafone Australia.
It has a neutral rating and $7.70 price target on its shares, which compares to its last close price on $7.30. This implies potential upside of just 5.5% for its shares, which pales in comparison to what it believes is on offer with Telstra and Vocus.
