Monday, July 12, 2010

TransCanada Corp 2

I first bought this stock (TSX-TRP, NYSE-TRP) in 2000 and then bought more in 2006. I have made a total return on this stock of 10.7% per year. On my original investment in 2000, I am making a return of 7.6%.

When I looked at Insider Trading last year, there was lots of Insider Buying. This year, there is lots of Insider Selling. Insider selling is almost up to $27M. The selling seems to be all stock options, so it is hard to say if this is a bad sign or not. You never know why people sell. Management has raised the dividends this year, and this points to management’s faith in producing enough cash flow for an increased dividend.

The 5 year average low P/E ratio is 13.5 and the 5 year average high is 17. Based on earning estimate for 2010, the current P/E is 17.5. One problem is that earnings expectations are rather low for this year. I get a current Graham Price of $32.66. Note that this has been coming down recently, because of lower earnings. The Graham Price of 2008 was $34.44. The current price is just 8.8% off current Graham Price. Note that the Graham Price uses the earnings estimates also.

When I look at the current dividend yield, I get one of 4.5%. The 5 year average is 3.9% and the 5 year average high is 4.4%. So, on a relative basis, the yield is a good one. When I look at the Price/Book Value ratio, I get a current one of 1.52 and a 10 year average of 1.95. The current one is only 78% of the 10 year average and this also points to a good current stock price. Note that neither the dividend yield, nor the P/B Ratio use estimates.

When I look at analysts’ recommendations, I find lots of Strong Buy, and Buy recommendations and a few Hold recommendations. The consensus recommendation would be a Buy. (See my site for information on analyst ratings.) This stock is also considered to be a low risk stock. It is also considered a defensive stock (that is one you have in recessions). Some people are worried about the Keystone pipeline being built, but it already has US government approval.

I am happy with this stock and I will continue to hold it. I will probably not buy more as I have enough of this stock in my portfolio and I do not like any one stock to be a too high a percentage of my total portfolio.

TransCanada is a leader in energy infrastructure. Their network of pipeline taps into virtually all major gas supply basins in North America. TransCanada is one of the continent’s largest providers of gas storage and related services. It is a growing independent power producer. Its web site is here TransCanada. See my spreadsheet at trp.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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