Friday, July 2, 2010

Toromont Industries Ltd 2

I originally bought this stock (TSX-TIH) in 2007 and then bought more in 2008. My total return on my investment in this stock is -1% per year. The reason I invested in this stock was to diversify away from a portfolio of Banks and Utility stock. I am only earning some 2% in dividends on my original investment. This is a stock with a low dividend yield, but a fast growing dividend.

I first looked at an Insider Trading Report. I found that there has been more Insider Selling than Insider Buying. Selling is just under $1M and buying is at $.28M, leaving net selling at $.7M. It would be nice to look at a company with lots of Insider Buying, but they seem few lately.

The one good thing that I found out is that a company called Leith Wheeler Investment Counsel Ltd owns almost 10% of the shares of this company. Leith Wheeler Investment Counsel Ltd. is an employee owned firm providing portfolio management services for individuals, pensions and foundations.

The next thing to look at is how good the current stock price for buying this stock is. The 5 year average low P/E ratio is 12 and the 5 year high P/E ratio is 17. I get a current P/E ratio based on earnings estimates for 2010 of 18.7 and a P/E ratio for 2011, based on earnings estimates of 12.5. The earnings estimate for 2010 has recently been lowed quite a bit because of low earnings for the 1st quarter of 2010.

When I look at the Graham Price, I get a current one of $20.56. Note that the Graham price for 2009 was $23.47. The reason it has been lowed is because earnings estimates for 2010 have come in at $1.25 compared to 2009 earnings of $1.86. The current stock price of $23.32 is some 13% higher than the Graham Price. (However, the current price is close to 2009’s Graham Price.)

Looking at the Price/Book Value (which does not depend on estimates), I get a current ratio of 1.55. The 10 year average P/B is 2.53. The current ratio is some 63% of the 10 year average and any current ratio at 80% or less than the current ratio points to a good current stock price. The thing to look at is the dividend yield. The current one is 2.6%. The 5 year average is 1.9%. The 10 year average high is 2.2%. This current dividend yield would also point to a good current stock price.

When I look at analysts’ recommendations, I get lots of Strong Buy, few Buy and lots of Hold recommendations. The consensus recommendation is a Hold. (See my site for information on analyst ratings.) Analysts talk about the great management team of this company. The purchase of Enerflex is considered to be a good move as it will give this company exposure to Asia.

Do not forget that analyst give recommendations based on how they look on investing. Some consider investments based on how well a stock will do over the next little while and other analysts consider investments based on the long term. Their particular investment time horizon will affect their investment advice. Since I invest for the long term, and if I see a stock I would like to own at a really good price, I will go for it. I invest in dividend paying stocks, so I can ride out any short term problems and collect dividends while a stock (and the stock market) revives in regards to market value.

I am happy with my investment in this company. Although I have not made any money on it, this is not unexpected when a recession happens after a stock purchase. However, I expect this to be a great long term investment for me.

There are two sections to this company. The Equipment Group is for Caterpillar dealerships. The Compression Group designs, engineers, fabricates and installs compression systems for natural gas, fuel gas and carbon dioxide. This last group also has industrial and recreational refrigeration systems. Its web site is here Toromont. See my spreadsheet at tih.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 for stocks followed and investment notes. Follow me on twitter.

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