Is the Telstra Corporation Ltd (ASX: TLS) share price a buy? The telco could be one of the most defensive shares within the ASX 20.
We’ve already seen during this period how uncertain shares like Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ) can be at a time like the coronavirus.
I don’t know about you, but the internet has been one of the main things that has helped during this coronavirus period. Whether that’s communication, entertainment, work – Telstra (and other telcos) help deliver that imperative service.
The Telstra share price has been rightly falling over the past five years. The NBN has cut into profit margins and there has been strong price competition on 4G mobile.
5G could change everything for the Telstra share price
A new technology has the potential to change everything. New technology offers growth potential we don’t even know of yet. We couldn’t have imagined how many new services would have become mainstream in the world thanks to 4G. Various Alphabet (Google) offerings, Facebook, ridesharing, food delivery and so on. Telstra’s share price and earnings hasn’t captured much of this value.
What’s going to happen with 5G? Well technology like automated cars and virtual reality or augmented reality are already planned services. That alone will be a huge change for life.
But we don’t yet know what the economics of what 5G will be. How much will customers have to pay each month? Will we have to pay monthly for things like our car?
How the pricing is structured is important. What’s to stop 5G just turning into a price competition like 4G has? That would be bad for the Telstra share price.
At the moment Telstra is in a good position. It’s probably going to be (one of) the first to bring 5G to the national Australian market. The delayed merger between TPG Telecom Ltd (ASX: TPM) and Vodafone Australia may help Telstra. First, there may be less price competition (and higher margins). Second the initial block by the ACCC has meant that TPG and Vodafone are behind Telstra in the 5G construction timetable.
Foolish takeaway
Is the Telstra share price a buy? Well the telco is investing heavily for 5G which is good. But FY20 may not show any profit growth despite all of the useful cost savings it has been implementing. It’s trading at 18x FY21’s estimated earnings. I want to wait until seeing how 5G will help Telstra before buying. I think I’d rather buy TPG today. There are plenty of other shares I’d rather buy in the ASX 200 too.
I think these shares are much better value with more likely, and more exciting, growth in store:
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More reading
- Top brokers pick the latest ASX shares to buy today
- Where will the Telstra share price be next year?
- Top brokers name 3 ASX shares to buy right now
- 3 easy rules for building a massive ASX share portfolio
- Tax planning for ASX 200 investors
Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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