I've been wary of Vodafone Group(LSE: VOD) for some time, seeing the share price as too high based on takeover hopes. Ever since the company sold off its stake in Verizon Wireless, it's looked like some sort of partnership could be a profitable way forward.
What I didn't see was any clear long-term strategy, and rather than a joined-up global giant, it seemed to me that I was looking at a rag-tag bundle of individual country telecoms firms with little in common.
Neil Woodford, it appears, had been having similar thoughts, having said that "over the last few years, we have had concerns about Vodafone's strategic focus". But that was after he had just bought some shares in May for his Income Focus fund, and he went on to say that a meeting with Vodafone's finance director convinced him there's now "a much clearer strategy for the business."
Time to buy?
The share price has been stagnating for a while, and at 229p it's lost 8% since early 2014. Forecasts for the year to March 2019 should drop the P/E to around 25 -- still high, but I'm increasingly thinking there are good long-term prospects here.
Though the short term is not too important right now, Vodafone's Q1 update revealed 2.2% organic service growth, with sustained data growth of 63%, and strong performances across Europe -- though overall revenue did drop by 3.3%.
Mooted dividend yields of 5.7% are nowhere near covered by earnings. That seems a bit mad to me and I've no idea of the reason for it, but I'm less concerned now that Mr Woodford wants it in his income portfolio.
Mergers in the future? Increasingly closer ties with Liberty Global are looking like a good prospect.
In from the cold
I'm starting to warm to Talktalk Telecom Group(LSE: TALK) too. We were all shocked by the security breach in 2015, with details of around 150,000 customers accessed by hackers -- and the market sent Talktalk's shares plunging.
But investing memories can be short, and since December 2016 we've seen a 19% rise to 183p.
Earnings have been growing impressively since 2014, and based on forecasts for the next two years we'd be looking at a P/E of a very modest 14 by March 2019. On top of that, Talktalk's predicted dividend yields are close to Vodafone's at around 5.5%, with the important difference that they'd be about 1.3 times covered by earnings.
A trading update on Wednesday told us of continuing strong demand for the company's Fixed Low Price Plans (FLPP), with the total number of FLPP customers reaching 1.3m. That suggests there's big demand for simpler lower-price connectivity and we're not all after "as much data as you can eat". My own broadband was recently upgraded from 100Mbps to 150Mbps, which makes no difference whatsoever for my kind of usage.
The reported "continued strong growth" in business-to-business service offered a sign that the hacking fallout is hopefully over, as I'd expect business customers to be more wary of security risks.
The company has reiterated its full-year guidance for EBITDA of between £270m and £300m. We should have a flat earnings year this time with growth coming next year, so I'm not getting too excited by that yet -- but it is quietly encouraging.
All in all, I see confidence returning with the share price apparently lagging behind. Talktalk shares look nicely priced to me.
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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.