Thursday, July 8, 2010

TransAlta Corp 2

I will continue to review this stock, TransAlta Corp (TSX-TA, NYSE-TAC) today. I have owned for a long time. It is basically an electrical utility. What you should expect out of such a company is 8% return over the long term, basically with 4% from dividends and 4% from stock increases. I bought this company in 1987 and I bought some more in February of 2009. To date I have made a return of 7.7%. (The stock is currently depressed because of the recession.)

When I looked at Insider Trading, I find a bit more Insider Selling than Insider Buying, but there is not much of either. Last year when I looked, there was lots of Insider Buying. In both 2008 and 2009, the dividend was increased. It looks like there will be no dividend increase for 2010.

When I look at 5 year average P/E low, I get one of 18 and the 5 year average P/E high is 27. These are high P/E ratios. The current P/E ratio based on earnings estimates for 2010 is 18. So, it is good on a relative bases, but is rather high on an absolute basis. I get a current Graham Price of $18.52. The current stock price of $19.96 is only 8% higher. The stock price of this stock is seldom at the Graham Price and it has been, on average, some 15% above the low stock price over the past 5 years.

I get a 10 year average Price/Book Value ratio of 2.08. The current P/B ratio of 1.44 is only 69% of the 10 year average and therefore this does point to a good relative stock price. The last thing to look at is the yield. It is at 5.8%. This is above the 5 year average of 4.2% and also above the 5 year average low of 5.2%. It is about the same as the 10 year average low yield. All in all, we are looking at a good relative stock price.

When I look at Analysts recommendations, I find a few Strong Buy, and lots of Hold recommendations. I also find 1 Underperform and 1 Sell recommendations. It is interesting there are no Buy recommendations. The consensus recommendation would be a Hold. (See my site for information on analyst ratings.)

It is also interesting that the analysts with the Hold and Strong Buy recommendations say the same things. The dividend is good and there is not much upside to the stock price. Both think the total earnings going forward will the in the 8% and 9% range.

I plan to hold on to this stock. It is a utility stock; and what I expect and want from it is a good dividend and total returns of 8%. I feel that stock portfolios need some solid dividend paying stock in them and this would fit that bill. It is also at a relatively good current price. A lot of people feel that the stock market is not going to do a lot anyway in the near future. So, if you buy this stock, you can enjoy a good dividend until times improve.

TransAlta Corp is an electric generation and marketing company. They operate in Canada, the U.S., Mexico and Australia. Most of its generating capacity is coal-fired, but it does produce electricity from both hydro power and alternative energy. Its web site is here TransAlta. See my spreadsheet at ta.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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