Friday, September 30, 2011

ARC Resources Ltd 2

I usually have 4 to 5% of my portfolio in cash. What I like to have is enough cash and expected dividends to cover withdrawals over the next 5 years. I currently cover 4 year. Why I need the cash is that I am living off my portfolio and I need to have cash in my RRSP accounts to take money from them. I have been a bit short since the 2008 recession, but hopefully will catch up if the market pulls up as usual in December this year and January to May next year.

I do not own this stock (TSX-ARX.A). Yesterday, I talked about the dividends from this company and the fact that shareholders make good money from dividend income. Today, I want to look at the price of the stock and what analysts say about it.

For this stock, the insider trading report shows that there is both insider buying and insider selling, with a net of insider buying just under $1M. This is very minor. What is nice is insiders own more shares than stock options. Although insider own shares worth in the millions, they are a very small percentage of outstanding shares as company is worth around $6B. For example, the CEO has stock with some $8M, but this is a fraction of 1% (.13%) of the company.

There is some 179 institutions that own around 52% of this company, They have bought and sold this stock over the past 3 months and currently own 1.3% more than they did 3 months ago.

I get a 5 year median low Price/Earnings Ratio of 8.8 and a 5 year median high P/E of 13.6. The current P/E of 16 is higher than both of these. However, the P/E ratios have been higher over the past two years, ranging from a low of 12.2 to a high of 26.2. A P/E of 15.96 is a moderate P/E Ratio.

I get a Graham Price of $13.81and the current stock price of $21.07 is 13% higher. The median difference between the Graham Price and stock price is 9% and the high median difference is 37%. So this points to a reasonable price.

I get a 10 year median Price/Book Value Ratio of 2.12 and a current P/B Ratio of 1.87. This also points to a reasonable stock price. (The P/B Ratio would have to be 80% of the 10 year median or 1.70 to show a great current price.)

The last thing to look at is the dividend yield which is currently at 5.7%. The 5 year median dividend yield is higher at 9.5%. However, this stock’s dividend fluctuates and 5.7% is, indeed, a good yield. So from all this, we get a mixed picture. Because earnings and dividend fluctuate, you might want to look more closely at the Graham Price and Price/Book Value Ratios. You could interpret the stock price as reasonable.

So, what do the analysts say? What I find is Strong Buy, Buy and Hold recommendations, with most in the Buy and Hold categories. The consensus would be a Buy recommendation. The buy recommendation comes with a 12 month stock price of $27.00 to $29.00.

One analyst called this stock a defensive stock, because of low debt and safe dividend and considering the market, thought this was a good stock to buy. Of course, this is an oil and gas company and therefore is consider a high risk. Another analyst talks about the good management of this company. This company is fairly balanced between oil and gas. One analyst gives a sell price of $27 and another at $29.

This is an admired company. Although the earnings and cash flow do fluctuate, they do have positive earnings and cash flow. But, as I said above, this is a resource company (oil and gas) and therefore a rather risky investment. Personally, I do not have much in oil and gas because earnings and dividend fluctuations. But, in the long term, this sort of company does provide great income, just not consistent income.

ARC Resources Ltd. is one of Canada's leading conventional oil and gas companies. Its focus is on acquiring and developing long-life oil and gas properties across western Canada. Its web site is here ARC Resources. See my spreadsheet at arx.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. Susan,

    You always say that you wait for a reasonable price when you buy a stock, but what is a reasonable price? In another blog, you said that you can wait for an awfully long time for a stock to dip before buying, I certainly agreed with you on this. For example, take ENB. I have been waiting for it to dip, but it never does. It is now at an all time high. So, what is a reasonable price to buy it? Thanks.


  2. Hi Susan,

    Great analysis! I'm starting to get addicted to your site.

    I have a position in ARX-T and it's one of those intermediate-cap Oil & Gas plays in a sector that can be risky to the investor.

    You're absolutely right in that the income stream has not been historically consistent, as we have witnessed with similar small to mid-cap stocks within this sector such as DAY-T, PWT-T, PGF-T, and COS-T to name a few.

    I'm not planning on adding to my position any time soon; however, I don't plan on selling my position as I do like the company's operations and segment of the market they have.

    Again, great job!