Monday, September 27, 2010

TransCanada Corp 2

I own this stock (TSX-TRP). I first bought this stock in February 2000, and purchased more in 2006. To date, I have made a total return on this stock of 11.6% per year. They on the dividend lists that I follow and this is the sort of stock you want to buy when starting a portfolio, see Setting Up A portfolio.

There is an entry on Wikipedia for this stock. There is a recent article on pipelines in Reuters. Also see Equedia site for some analysts talking about this company. Analysts interviewed are David Baskin, John Stephenson and Andrew McCreath earlier this year. See also an interview by MacLeans magazine of TransCanada Corp.’s CEO, Russ Girling.

In the Insider Trading report, we find that there has been some $30M of insider selling. Company insiders get a lot of their compensation in options. This sell off is about .1% of the total market capital of this company. The actual number of shares insider hold in this company has not really changed over the past year. Also, Hal Kvisle has just retired (September 2010) from the President and CEO position of this company.

The 5 year median low P/E Ratio is 13.8 and the 5 year median high P/E Ratio is 17.2. This puts the current P/E ratio of 18.8 on the high side. However, earnings are not expected to be strong this year, so this causes the P/E ratio to be high. Earnings are expected to be better next year, and the forward P/E is a better 15.6. I get a Graham Price of $33.22. The current price of 38.16 is some 15% higher. Generally, for this stock the stock price is lower than the Graham Price is at some point during the year. However, on average the stock price is 25% above the graham price during the year.

When looking at the Dividend Yield, I get a current one of 4.2% and a 5 year average of 3.9%. So, this shows a relatively good stock price. Some people feel that the best way of judging the stock price on dividend paying stock is just using the dividend yield. If you look at my spreadsheet on any stock, you will get 10 years of data. You can use your cursor to highlight any dividend line of data showing the yield on high, low and average stock prices. This could be a quick way of judging the current stock price of a stock you are looking to purchase.

Another good way to judge a stock is using the Price/Book Value ratio. The 10 year average P/B ratio is 1.95 and the current P/B ratio is just 1.58. That is just 80% of the 10 year average and this point to a very good stock price. As with the Dividend Yield, when you use the P/B ratio to judge the current stock price you are not using any estimates.

The other advantage of both the Dividend Yield and P/B ratio is that you are also not using earnings. Earnings can fluctuate a lot more than Book Value or Dividends. Earnings can be depressed in a recession and quite high when the economy expands. At both these times, the P/E ratio or the Graham Price might not be a good way to tell how good the current stock price is.

So what do the analysts say? There are a lot of Strong Buy recommendations, fewer Buy recommendations and then some Hold recommendations. The consensus maybe a toss up between Strong Buy and Buy, but is probably narrowly in the Buy area. (See my site for information on analyst ratings.) Analysts talk about it good yield and its increasing dividend and cash flows. It is recommended as a long term buy.

I, of course, will continue to hold my shares and track this company. I will not be buying any more as I have enough of it in my 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.

3 comments:

  1. Hello,
    I just found your blog yesterday and looking forward to reading all of your older posts. I find it amazing how you list all that different valuable information in one place and in an easy to understand way.
    The Graham, the P/E, the price to book - those are the things that I usually find difficult to understand.
    Would you be able to do a post on Monsanto? The stock price has been falling recently and I have been looking for a good entry point, but now I am having second thoughts after seeing their past earnings, but if I knew the Graham, the P/B, the P/E, the 5-10 year average dividend yield I would know for sure if it was a buy now. I can get the current P/E and P/B and yield on globeinvestor but not the averages - that mystifies me sadly. thanks

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  2. I mainly follow Canadian Stock, so I will not be doing a post on Monsanto. You can look at the P/E for different years on the Monsanto report by Standard and Poor or the one by Reuters. You might be able to get these reports from your broker. In my entry on Canada Bread Co 2 here, I discuss how to calculate the Graham Price.

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