Telstra needs good data or investors will be flushed out
A STOCK I have totally underestimated this year has been Telstra.
A STOCK I have totally underestimated this year has been Telstra.I have suggested we play the dividend game and buy the stock seven weeks out from the company going ex-dividend and then sell it. For the rest of the year you could leave the company alone because it offered very little earnings growth and looked expensive. The logic behind this approach was to ride the stock higher as franking-hungry superannuation accounts snaffled up the stock.The reality is Telstra's share price has rallied a mighty 14 per cent since going ex-dividend in August, compared with a paltry 2 per cent gain from the overall market. The stock sits at around $4.30 and is trading on a 2013 price-to-earnings multiple of 14.6 times - a 15 per cent premium to the market. Management confirmed the company would continue to pay an annual fully-franked dividend of 28? a share, putting it on a yield of 6.6 per cent. We must remember, though, this is almost a 100 per cent pay-out ratio.Stockbroking analysts who attended an upbeat Telstra investor day last month are still struggling to recommend the stock. The street values Telstra at $3.50 and $4 a share.The biggest concern is the lack of earnings growth, with most analysts forecasting 2015 earnings per share between 28? and 30?. If this proves to be the case, investors should not expect the type of stunning capital gains they have had in addition to their dividends over the past year or so.The Telstra bulls believe there is upside in the share price because the company is fabulously placed to take advantage of the data explosion through mobile devices. This may be true, but given the valuation, this growth will have to appear soon to justify another leg-up in the share price. If the analysts are correct and there is little growth, the days of hiding in Telstra may be coming to an end.Ramsay Health CareAT ITS annual meeting, Ramsay pointed out that shareholders had had a 23.7 per cent annual compound return since 1997. In comparison, the Australian sharemarket had an annual average return of 7.6 per cent.The catalyst for the stock to take off was a decision by the federal Liberal government to introduce a 30 per cent rebate for those who took out private health insurance. This drove the percentage of adult Australians in private health insurance from around 30 per cent to 45 per cent. Ramsay's earnings and share price have never looked back.The Labor government has been steadily chipping away at the $5 billion subsidy it pays into private health insurance.Initially, it introduced a means test and more recently it added some other measures that will result in the rebate paid fall by about a per cent each year from 2014. None of this is dramatic but it is a slight headwind when hospital margins are historically high and Ramsay is trading on a hefty 18.5 times current year earnings.Analysts generally have a price target on the stock about 5 to 10 per cent below its current levels of around $26.28. It is hard to sell a star performer, but it might be hard for the stock price to move higher.E&A LtdA STOCK that has been hitting 12-month highs recently is heavy engineering group E&A. The South Australian group floated at the peak of the market in 2007 for $1 a share and rocketed to a high of $1.59. The company missed its forecast profit in June 2008 and the stock began its long journey down to 12? a share in mid-2011.The stock has climbed to 35? a share. Insiders have been picking up stock in the dividend re-investment plan and now control about 70 per cent of the shares.Soon after the dividend re-investment plan, the company gave an upbeat assessment after a sturdy first quarter. For the three months to September, revenue was up 16 per cent while net profit was $1.6 million, compared with a full-year result of $3.8 million in 2012. If this rate can continue, the company will earn more than $6 million and pay a dividend of about 5? a share. This would place the stock on a price-to-earnings multiple of 6.5 times and a yield of 13 per cent.It will be interesting to see if the company is still going so well at the half-yearly result. If so, the stock could easily move up to 45? a firstname.lastname@example.orgThe Age takes no responsibility for stock tips.