It’s an understatement to say that the telecom industry in Canada is going through a tough phase. All three giants are heavily discounted and have lost at least a third of their market value from their five-year peak. Yet they are still not considered undervalued stocks, and one of them (BCE) is alarmingly overvalued despite being the most discounted.
But it still wouldn’t be wise to write off the telecom sector. Telus (TSX:T) is quite attractive at its current discount, and if it survives this sector-wide onslaught, it might emerge as a powerful long-term holding.
Why Telus?
It’s natural to wonder why this telecom is singled out from the sector when it’s not even the least discounted one. However, there are several reasons for that, starting with its business mix. While it’s true that most of Telus’s revenue comes from conventional sources where it directly competes with the other two giants (albeit with clear dominance in some provinces), it is also investing and growing in other sectors.
One of them is telehealth, and the other is home security. It’s the largest (self-proclaimed) health IT company in the country. It has made significant strides in multiple domains, including mobile health clinics that have served about a quarter million Canadians yet.
Its app is also growing as one of the most widely used healthcare apps in the country. As for home security and smart homes, Telus has established itself as one of the leaders in North America.
Another reason to consider Telus as a strong, discounted giant you can hold long-term in your portfolio is its massive growth in the core domains. The company gained about 347,000 new customers in the last quarter, outpacing the other two giants. Also, as per some analysts, it is severely undervalued right now.
The potential
There is excellent potential in Telus, even as a 5G stock, even though it’s not the top contender in that arena. At its currently heavily discounted state (35%), the stock is offering a generous 7.2% yield. It also looks stable enough to afford these dividends and retain its position as a Dividend Aristocrat when one of its rivals might fall off the post.
So, buying now and locking in that excellent yield from an established Aristocrat can be transformative for a passive-income portfolio that is current- and retirement-oriented.
You can also expect a decent recovery. It has already climbed over 5% since last month, and even if it isn’t the start of its recovery journey, it might be pretty close. And it would lead to decent gains.
Foolish takeaway
While recovery is reason enough to buy the stock now and hold it till you realize these gains, there are two reasons to have this stock forever.
One is the dividends, and the second is the long-term growth potential that we saw in a relatively healthy and stable market between 2010 and 2020. The stock has risen by over 200% in a decade. Assuming it still has this kind of growth in store, Telus can be a powerful long-term holding.
