For investors looking to put their next $4,500 to work, finding the right place to allocate this capital is going to be important. Now, $4,500 is an arbitrary number. It’s personally what I tend to try to invest at a given point in time, based on household cash flow, but every investor will be looking to put different chunks of change down on the market at varying points in time.
However, for investors looking for top undervalued stocks in the market right now, it’s important to look in the right place. One top sector I’m watching closely from a value perspective is the Canadian telecom space. Within this space, I think Telus (TSX:T) remains a top option worth considering.
Here’s why Telus remains my top pick in this sector right now and what the company brings to the table for long-term investors.
Source: Getty Images
Strong top and bottom-line growth
Ultimately, what determines whether a given company is worth buying is its fundamentals. Sure, momentum and price action matters. There are plenty of technical investors out there.
But over the very long term, cash flow growth matters. After all, stocks are supposed to be valued as the discounted sum of all future free cash flows. So, on this metric, Telus really stands out as a winner.
The company has seen strong cash flow growth over time, supported by continued strength in both revenue and earnings growth, which have exceeded expectations. This past quarter, Telus reported revenue growth of 4% (exceeding estimates by 1%), with earnings more than doubling to 6.3% this past year.
That may not sound like a lot, but for a telecom giant like Telus, it’s a big deal. These numbers support the company’s impressive 7.5% dividend yield.
Can this rally continue?
As investors will note on Telus’ stock chart above, it hasn’t been all up and to the right in recent years. In fact, many market participants appear to have soured on the company’s earnings growth potential and have downgraded the stock accordingly.
That said, I think this share price decline from its peak a few years ago does provide a compelling opportunity for value-conscious investors looking to take advantage of Telus’s forward price-earnings multiple of around 20 times. And again, this dividend yield really is to die for if the company can continue to pay its distribution (and grow its dividend over time, as many expect).
The company’s recent earnings results do point in the right direction, on this front. And given the stronger-than-expected earnings growth we’ve seen, Telus does look well positioned to continue to surge over time. It may just take time, so patience will be key here.
