Thursday, February 23, 2012

Husky Energy Inc 2

I own this stock (TSX-HSE). I bought Husky in 2008 and some more in 2010. I have lost 8.8% per year on this stock. In this section I will discuss the current stock price and if it is reasonable or not. It is great to buy at a low price, but most of the time, reasonable will have to do.

First of all, about 75% of this company is owned by Mr. Li Ka-shing, directly or indirectly. There is not much action on Insider Trading except a very tiny amount of insider buying. The CEO, CFO and officers have more stock options than shares.

Also, some 150 institutions own just over 9% of the outstanding shares. They have bought and sold shares over the past 3 months and their investments in these shares have increased marginally (by just under ½ of 1%).

The Price/Earnings ratios have fluctuated quite a bit. The 10 year median low and high P/E Ratios are 9.37 and 13.39. So the current P/E ratio of 14.51 is a little high, relatively. (If we use 5 year median high P/E ratios, it is 20.96. However, I went to 10 years because P/E ratios do fluctuate a lot.)

I get a Graham Price of $27.27. The current stock price at $26.26 is some 3% lower. This is a good sign. The low difference between the Graham Price and Stock price is the Stock price is 22% lower. The median difference between the Graham Price and Stock price is the Stock price is 7% higher. A reasonable stock price is when the difference between the Graham price and Stock price is between the low and median values, which is where this stock falls.

I get a 10 year median Price/Book Value Ratio of 2.18 and the current one of 1.44 is 66% of the 10 year median value. This test shows a current good stock price. (A good stock price is when the current P/B Ratio is at or lower than 80% of the 10 year median P/B Ratio.)

The current Dividend Yield of 4.57% is almost the same as the 5 year median dividend yield of 4.59%. Ideally, you want the current dividend yield higher than the 5 year median dividend yield. (However, the 10 year median Dividend yield is at 4.12% and this is 10% lower than the current one.)

The stock price tests I use generally point to a reasonable stock price. The P/E ratio shows a relatively high stock price, but 14.51 P/E ratios on an absolute basis shows a reasonable stock price.

When I look at analysts’ recommendations, I find Strong Buy, Buy, Hold, Underperform and Sell. While the ones for other than Hold have 1 or 2 analysts, the Hold one has 10. The consensus is a Hold because so many analysts are recommending a Hold.

One analyst with a Hold recommendation gives a 12 month stock price of $28 and another said that there are better other companies to buy. One analyst with a Hold recommendation said he is concerned about the lack of growth. An analyst with a Strong Buy recommendation says that the company has good prospects for the longer-term. One with a Buy says that he feels positive about the stock and likes the good dividend yield.

Husky anticipates a difficult year is the headlines for a news article on this company in the G&M. Another article called Husky Energy Inc. a trade, not a hold in the G&M says that the company stock is not liked because “the company has failed to grow sufficiently to meet expectations. It is not that they have failed to grow, but that they have failed to meet expectations”. He goes on to say that “managing investor expectations is the toughest job in the world”.

The dividend Guy blogger recently bought this stock. See his blog for his analysis on Husky. This was also a pick for Dividend Ninja blogger.

A reason to buy a Canadian Oil and Gas producer is because such companies form a large part of the TSX. Another reason might be that you can get good dividend returns over the longer term. However, you have to be prepared to have a stock where the dividend fluctuates. I do not have much invested in this stock, but I plan to hold on to what I have.

This company is one of Canada's largest energy and energy-related companies. The Company's operations include the exploration, development and production of crude oil and natural gas. Husky has operations in Western Canada, Eastern Canada, US, China, Indonesia and Greenland. This company is mostly foreign owned. Industry: Oil and Gas (Integrated Oils). It is listed under TSX Energy Index. Its web site is here Husky. See my spreadsheet at hse.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. Your experience with Husky make me remember of my experience with EnCana corp (ECA). I had purchased some stocks at a bit less than 30$, not the stocks worth like 20$.

    There's always stock like that you think they will make a great investment and it happen to be like... not....

    But a 8% loss is not that major (it's not that of a big loss). You'll recover with your great performers.