Stockwatch: Qantas (QAN), Telstra (TLS) and Onesteel (OST)
November 10th, 2011 · Greg Atkinson · 19 Comments
In the midst this stock market turmoil there may be some battered down stocks which present the opportunity for investors to buy shares in quality companies at bargain prices. Three Australian companies that might fall into that category are Qantas Airways, Telstra Corporation and Onesteel Limited.
Let’s start with a company that has been in the news for all the wrong reasons: Qantas Airways Limited (ASX:QAN). Some years ago Qantas was flying high and its shares were trading around $6 during the ill-fated takeover bid by Airline Partners Australia. But after that deal fell apart in 2007, the Qantas share price slumped has languished ever since.
Qantas Airways Limited (ASX:QAN) 5 year stock price chart
Qantas rules the skies as far as domestic airline travel is concerned but on it’s international routes it is facing increasing competition from low cost carriers and airlines in Asia that operate from international airport hubs.
Qantas will probably continue to do well in the Australian domestic air travel market but it’s hard to see things improving for them on the international front. For Qantas to compete effectively on international routes they will need to operate from an Asian hub airport or merge with another airline.
At $1.58 per share the P/E ratio for Qantas is around 12 which is reasonable but its ROE (Return on Equity) is a poor 4.3%. About the only thing that interests me regarding Qantas shares is their book value which is currently around $2.70.
Due to foreign ownership restrictions it would be hard for Qantas to be taken over by another airline or investment group outside Australia, but there does seem to be some scope to sell some parts of Qantas and perhaps merge some business areas and/or operations with another airline.
For that reason alone I have Qantas on my watch list and I just might be tempted to pick up a few shares if they drifted down below their 52 week low of $1.35.
Another stock worth looking at is Telstra (ASX:TLS) It’s one of those companies people love to hate but despite this, it is the market leader in the telecommunications services sector in Australia. Its mobile business is very profitable and thanks to the blunders at Vodafone, it only has to worry about Optus these days.
Thankfully the days of Sol Trujillo are long gone and the new management team appear to be rebuilding the company. Their big challenge will be to deal with NBN Co. (which is effectively a state run monopoly), but I reckon Telstra will have the last laugh when the NBN turns out to be a commercial flop.
Telstra Corporation (ASX:TLS) 5 year stock price chart
The share price chart for Telstra looks promising. At today’s close of $3.11 the P/E ratio for the stock is around 12 and the ROE is an impressive 26%. So perhaps the worst days for Telstra are behind them and in the years ahead patient shareholders might be rewarded?
In any case my view is that Telstra shares are well worth watching and if they were to head down near $3.00 again that would stir my interest, especially since Telstra pay quite an attractive fully franked dividend.
Finally lets have a look at a stock which has been savaged as a result of the financial crisis and high Australian dollar – Onesteel Limited. (ASX:OST)
Onesteel Limited (ASX:OST) 5 year stock price chart
Onesteel is actually more than just a steel making company and is also involved for example in metals recycling and produces speciality products such as railway wheels and aluminium roofing. You would think that during a ‘mining boom’ business for OneSteel would be going well, but that doesn’t seem to be the case.
Onesteel’s exports have been hurt by the high AUD whereas imported steel products are efficiently cheaper, plus the company also has to deal with higher raw materials costs.
Onesteel shares closed today at $1.00 which gives them P/E ratio of 5.4 which appears very attractive. But Onesteel’s ROE is quite low at 5.3% and considering the challenges the company faces it’s difficult to find reasons to get excited about this stock.
At this stage even if the OST share drop below it’s 52 week low of $0.92 I wouldn’t be a buyer. There are simply much more promising stocks around at the moment.
Please remember that I not suggesting anyone buy, hold or sell any stocks based on my ramblings. Please do you own research and obtain professional investment advice if needed.
Disclaimer: I do not hold stocks in any of the above companies although I have once held shares in Qantas & Telstra.
Greg Atkinson is the editor of Shareswatch Australia and the Managing Director of Ohori Capital He is originally from Australia but currently resides in Japan. He can be followed on twitter via @GregAtkinson_jpSearch terms: how to buy qantas shares, qantas share price history graph, telstra shares, is it a good time to buy qantas shares, vodafone share price, blog disclaimer example