Thursday, June 23, 2011

Thomson Reuters Corp 2

I own this stock (TSX-TRI, NYSE-TRI). I held this stock in my RRSP account between 1998 and 2000. In this account, I made a total return of 14.3% per year on Thomson. For this period, my dividend portion of the total return was probably 2.2%. For my Trading account, I bought this stock in 1985 and I still have this stock in this account. To date, I have made total returns of 7.45% per year for this account on Thomson. For this stock, total return of both accounts is 8.3% per year.

When I look at insider trading, I find $4M net insider selling. There is $4.4M of insider selling and a minimal amount of insider buying. All the selling seems to be of options. None of this is significant. Of course one positive is that this company has raised their dividend by 6.9% in US$.

10 Institutions own about 35% of the shares of this company on the TSX. Over the past 3 months they have increased their investment in this company by 2.3%. No institution has sold any of their shares over the past 3 months. This is a positive. On the NYSE, 399 companies own 40% of the outstanding shares. They have increased their position only marginally over the past 3 months. There were no sales. So, this is also a positive.

When I look at the 5 year median Price/Earnings Ratio I get a low of 22.2 and a high of 30.7. The current P/E ratio based on earnings estimates is 17.8. This low P/E ratio points to a very good relative price. Also, on an absolute basis, a P/E of 17 is a reasonable one. (Note I am looking at CDN$ values, but they are not significantly different than US$ values, so switching currencies will not make any difference here.)

I get a 10 year Price/Book Value Ratio of 2.14 and a current one of 1.59. This current one is some 74% of the long term ratio. If the current ratio is 80% or lower compared to the 10 year ratio, it means that the current stock price is relatively good. The current dividend yield is 3.34% and the 5 year median is 3.18%. This also points to a good relative current stock price.

I get a Graham Price of $32.37. This is some 12% below the current stock price of $36.26. The median difference between the Graham Price and the low stock price over the past 10 years is the low stock price has been some 40.6% above the Graham Price. This difference points to a relatively good stock price. In fact, all my indicators point to a relatively good stock price. (See my site for information on calculating Graham Price.)

When I looked at analysts’ recommendations, I find lots of Strong Buy, lots of Hold, some Buy and at least one Sell. There are no others. The consensus would be a Buy. However, the consensus recommendation is quite close to a Hold. One Hold recommendation complained the long time it is taking for the integration of Thomson and Reuters. He feels that although cash flow should increase this year, there will still be a profit headwind. Hold recommendations come with a 12 month stock price of $40.

Some buy or strong buy recommendations come with a 12 month stock price of $45 to $50. A buy recommendation report says that Thomson Reuters have a well laid out plan to become more efficient. A Strong Buy recommendation said that it is a subscription based business with a high renewal rate of 86%.

Most negative comments talk about the stock moving sideways for some time now. Some do not see that this will change anytime soon. One feels that that it is not a good current buy as the stock price just moved below its 50 day and 200 day moving averages. Another thinks an investment in this company is dead money.

I hold this stock in my Trading Account. To sell a stock from my Trading Account, I look at the company’s long term viability. If it has long term viability, I will probably not sell. I also sell a stock if I like another stock better. However, to sell from my Trading account, I would have to believe that not only will I make a better return on the replacement stock, but also gain back the tax I have to pay to sell a stock.

For this stock, I certainly think it has long term viability. I think that on a long term basis still, it will produce a decent return for me. Therefore, I am not selling it. Although, I am not sure that I would buy this company today. It is not the same company that I bought in 1985. Although, I must admit that companies have to change over time to survive.

I have always been more careful in my investment in my Trading Account, generally looking for good long term stock. I do not sell from this account very easily either. The problem with a trading account is there are tax consequences. There is no such consequences for an RRSP account, so it is easier to make that sell transaction. It is also easier to make a buy transaction, because if you are wrong about a stock, you can sell with no tax consequences. It is easier to buy stocks for just capital gain for an RRSP account, because selling does not have tax consequences.

I have kept complete records in Quicken since 1 January 1994. According to Quicken, the total return on my trading account since then is 13.04% per year. The Total Return on my RRSP account since then is 9.87% per year. Another time period doesn’t help. If I do total return on my Trading Account to the end of 1999, my total return is 24.21% per year. For my RRSP account, it is 16.4% per year. So do I pick better stocks for my trading account? Or is it my reluctance to sell that makes a difference.

Thomson Reuters Corp is the leading source of intelligent information for businesses and professionals. They combine industry expertise with innovative technology to deliver critical information to leading decision-makers. Through more than 50,000 people in over 100 countries, they deliver this must-have insight to the financial, legal, tax and accounting, healthcare and science and media markets, powered by the world’s most trusted news organization. They derive the majority of our revenues from selling electronic content and services to professionals, primarily on a subscription basis. Its web site is here Thomson Reuters. See my spreadsheet at tri.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.

1 comment:

  1. Susan,

    I have the highest regard of your analysis and opinion. What you said about TRI today: “Therefore, I am not selling it. Although, I am not sure I would buy this company today” is very meaningful. Perhaps for every stock you are reviewing and which you have bought a long time ago, you can give this opinion: if you do not own it, would you buy it today? Much thanks.