SNC Lavalin, One of My Favorites

This blog is meant for educational purposes only, and not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional.

I bought this stock (TSX code SNC) in December 1998. According to Quicken, I have made a return of some 35% annually (IRR - Internal Rate of Return). This has been a great stock. Not only has it been great in the growth of its price, it has been great in its growth of dividends. However, after having said this about the dividends, less than 4% IRR can be attributed to the dividend.

I would consider this stock a dividend paying growth stock. It is also growing it dividend, and over the last 5 years it has grown its dividend at a rate of some 25%.

The Graham price was at 31 December 2007 $11.76 and the closing price of the stock was $48.14. This is a huge difference. The Graham Price is basically what the stock would be worth if it was a value stock, not a growth stock. The Graham Price is by Benjamin Graham who wrote the famous book, The Intelligent Investor. The problem is that the Book Value per share is increasing at a much lower level than the stocks price. BV has increased at 9% per year over last 5 years and the stock price has increased at almost 35% per year over last 5 years. You can also see the over valuation of this stock in the P/E ratio at year end of 48.1. This is, of course, a negative for this stock.

The next thing to discuss is what is happening currently on this stock. This stock hit a peak in mid May and has come down. Currently, I would not buy any more because the stock I have is worth approximately 5% of my portfolio. I do not like any one stock getting greater than 5% of my portfolio. However, I will continue to hold it.

See my spreadsheet at http://www.spbrunner.com/stocks/snc.htm. See my website at http://www.spbrunner.com/stocks.html.

I know that this stock has recently been touted as a buy, but there are a number of indicators that says it is overpriced. The problem is that the market is just pushing this stock ever higher and it is generally not advisable to bet against the market.

This company is involved with engineering and construction work around the world, this includes infrastructure and buildings; infrastructure and construction; power (nuclear, thermal, hydro etc); chemicals and petroleum; environmental projects; and mining and metallurgy projects. They have offices and Canada and around the world, from Algeria to Vietnam, including Australia, Europe, Russia, Africa, Middle East, Asia, South America, USA