Tuesday, October 13, 2009

Arc Energy Trust 2

I am continuing my review this stock (TSX-AET.UN) today as I have updated my spreadsheet with the December 2008 financials and the 2nd quarterly financials. I do not own this stock. This is an income trust stock that I follow. They have also decreased their distributions this year.

I looked at Insider Buying and Insider Selling over the past year for this company. What I found was, over the past year, there has been twice as much selling as buying. However, for the past 4 to 5 months, all the Insider trading has been buying. Over the past 5 to 6 months, the CEO and other officers have increased their holdings in this company. I do not think that this points to any particular buy or sell signal.

I calculate P/E based on expected earnings, so I get an expected P/E of about 40 for this year and about 20 for next year. A P/E of 40 is very high. This is because this company is not expected to earning much in this calendar year. The 5 year average low P/E is 8.6. I notice that sites that use the earnings for the last 12 months to calculate this figure get a P/E of around between 9.5 and this is a good P/E. A P/E of 10 and less is low.

This dividend yield on this stock is current just around 6%. This stock has a 5 year average of over 10%, so the current yield is low by this standard. However, a yield of 6% is good. As I said yesterday, this is an oil and gas company and their dividends do tend to fluctuation with the price of oil and gas.

The Price/Book Value ratio is about equal to the 10 year average. So this does not point to a good current price. Also, the current Graham Price is some 50% below the current price. The Graham price was close to the current price at the end of 2008, however, it has fallen because this company is not expected to earn much this year. The Return on Equity for this stock is usually quite good. However, it is low for the 2nd quarter at only 7.6%. Usually the ROE is around 15 to 20%.

Now it is time to look at what the analysts’ recommendations are. I see a lot of Buy recommendations, a few Holds and a few Strong Buys. The consensus is a Buy. This company stocks is considered, of course, to be a high risk. (See my site for information on analyst ratings.)

If you look at the charts, this stock has done as well as or better than the TSX over the long term. Plus this stock has paid good dividends. But this is an oil and gas stock and therefore it tends to be volatile and also, the dividends do tend to fluctuate with the price of oil and gas. It is considered high risk. You should not invest in this sort of stock if you cannot take the volatility. I have no investment in this company, but I have a bit in the oil and gas industry in order to keep track of how this resource is doing. Canada, after all, is a resource rich country.

Arc Energy Trust acquires and develops long-life low declining oil and gas properties in Western Canada. Its web site is www.arcresources.com. See my spreadsheet at www.spbrunner.com/stocks/aet.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website at www.spbrunner.com/stocks.html for a list of the stocks for which I have put up spreadsheets.

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