SNC-Lavalin The Most Undervalued Stock

SNC-Lavalin Group trades at $44.08 per share and I believe is one of the most undervalued stocks out there in today’s market. I come from an engineering background and SNC is an industry leader worldwide. There are four main segments to SNC including: Resources, Environment and Water, Power and Infrastructure. SNC works worldwide and in turn bring in huge profits as we will see in the metrics. SNC has few direct competitors globally as they are so diverse but I will compare them Stantec for my analysis.


The main reason SNC may be so undervalued is of course the legal issue. SNC has been charged with alleged bribery for business conducted in Libya, this is not new within the construction industry but it has major implications. If found guilty SNC will not be able to bid government work for the next 10 years a significant portion of their profits.


I believe this will never actually happen, and in fact the personnel involved have been removed from their positions. I think they will maintain their good standing and be able to bid but they will be on thin ice.


There is plenty of value within the company for example they are looking at selling their stake in highway 407 worth approx. $3 Billion or $20 per share. SNC has many contracts on the books and billions in assets as mentioned at the current rate it is ridiculously cheap and If I had some spare capital that’s what I would buy.
        1. Price to Earnings Ratio

P/E Ratio TTM
SNC	STN
5.1	20.6

 

Forward P/E Ratio
SNC	STN
15.5	16.2

 
Based on the above you can see how cheap SNC really is. Much lower than the TSX average. At these rates it seems strange the stock keeps falling. Even Warren Buffet was thinking of an acquisition at these levels.


        2. Yield

Dividend Yield
SNC	STN
2.17%	1.06%

 
Yield of both SNC and STN are both on the weak side, but with the growth opportunities this seems acceptable for the risk.

Dividend Growth Rate
SNC	STN
8.23%	0.78%

 
SNC has actively increase their dividend at a rate of 8% which I feel may pay off later. They show they are looking to reward their shareholders by increasing yield but also using money to grow the company.


        3. Payout Ratio

Payout Ratio
SNC	STN
11%	21.3%

 
Both companies have very low payout ratios meaning they have plenty of money left to reward shareholders in the future through growth, buybacks, or increasing the dividend.

I believe SNC offers one of the best buying opportunities on todays market and investors should take a look for themselves! The one thing to keep in mind though is that legal issue and how it may effect SNC in the long run.

Should I Buy KO?

Coca-Cola is one of the best known companies on earth as well as one of Buffets core long term holdings, so I could say good enough for Buffet it’s good enough for me, However, I like to make my own decision as nobody is perfect. To properly look at KO I will also need to look at PEP and DPS for a comparison and to see how KO is actually valued.

      1.      Price to Earnings Ratio.

Price To Earnings (TTM)
KO	PEP	DPS
25.5	22.1	20.8

Forward Price To Earnings
KO	PEP	DPS
18.8	19.3	17.9

Price to earnings on all three companies are very high these drink companies are on the expensive side when it comes to price to earnings even looking at Forward price to Earnings is expensive which is somewhat expected when looking at solid companies with good dividends. From the analysis DPS seems to be the best value bet however, we will look further.

      2.      Dividend Yield and Growth

Dividend Yield
KO	PEP	DPS
3.14%	2.81%	2.39%

 Next I took a look at the Dividend Yields. As KO has long been a favorite by Buffet as a dividend investment it yields a healthy 3.14% and has a long history of increasing that dividend. All three companies have good yields of over 2% with KO being the highest at with DPS being the lowest at 2.39%.

Dividend Growth Rate
KO	PEP	DPS
7.72%	6.77%	17.11%

 Another metric I like is dividend growth. A company may have a good looking dividend but I like companies that have histories of increasing this dividend so I looked at Dividend Growth. From this DPS has defiantly grown their dividend the most by almost 3x the other two. But all three show consistent increase in dividends.

     3.      Payout Ratio

Payout Ratio(TTM)
Company	KO	PEP	DPS
Ratio	77.3%	60.5%	47.2%

With good yields and good growth for all three companies the payout ratio needed to be looked at. This metric lets us know if the company can actually afford the dividend and also afford to increase it year over year. From the analysis however it shows the PEP and KO both payout ratios are very high at 81% and 94% respectively  DPS seems to have the best payout ratio at just under 60% the number I like to look for  on a growth basis. DPS keeps enough funds from their EPS to grow the company while PEP and KO are returning most of their profits to shareholders.

 
In conclusion I like companies with low P/E ratios compared to the market, yields >3% and, consistent dividend growth and a payout ratio of less than 60%. None of these companies off quite what I am looking for as an investor however, I will add DPS to my watchlist as it represent the best option in this group in my opinion.

I know Buffett love his Coca-Cola, but right now for me it’s just to expensive with the growth its capable of

 

New Purchase!

My first Mad Money stock, I decided that a certain allocation of my portfolio will be dedicated to a Mad Money type stock. I consider these stocks to have great growth potential or an extremely high dividend yield, in other words a sort of wildcard that may serve you very well or very poorly.

For my first Mad Money Stock I purchased 265 Shares of SVC.TO or Sandvine.  Sandvine is a networking equipment company based in Waterloo Ontario.  Sandvine network policy control products are designed to implement broad network policies, ranging from service creation, billing, congestion management, and security.  Sandvine is essentially a service provider to offers its unique services to companies in need of them. They are in somewhat of an interesting place, and with Internet basically everywhere today, I see great growth potential for this stock.

The metrics:

Price – 3.68/Share

P/E (TTM)- 18.2

EPS  (TTM) – 0.17

Forward P/E – 15.2


These metrics are not great for a good diviend stock that I look to usually, however, for a company with such growth potential I believe it is undervalued. The cash flow is strong and their financials are in order, I believe this company can grow even in a down market and thus I decided to take a chance on them. Over the past five years they have experienced a year over year growth of 13.3% and YTD already they are up nearly 12%.

I think the area which this company operates is somewhat of an unknown for most and the growing demand to optimize the services they provide may enable great growth in this small company.

But at the end of the day I will quote a great movie (Rounders - Mike McDermott) "You can't lose what you don't put in the middle. But you can't win much either"

 

Canadian Grocery Store Analysis

In today's market, many people in North America are faced with the realization that a market isn’t as strong as it may seem. With the housing market issues in Canada and the Fed toying with the interest rate in the United States times are somewhat unstable. So in times like these strong companies that we need regardless generally perform steadily and act as somewhat of insurance to your portfolio when some of your more risky equities may drop in the short term. One such group of companies that perform well are typically the grocery stores.

 

In this article I will take a look at three big grocery stores in Canada.

•         Loblaws
•         Metro
•      Empire

These three companies supply food to most Canadians and are a vital service making them steady gaining investments, The question is however, is how do they fit in a dividend portfolio and how expensive is it to have a “safe” equity such as this in your portfolio.

 

1.      Price to Earnings Ratio

 

Price to Earnings Ratio (TTM)
L	MRU	EMP
337.8	18.4	22.7
Forward Price to Earnings Ratio
L	MRU	EMP
15.90	15.50	13.30

From the above numbers it can be seen that all three companies fairly priced with Loblaws being the most expensive. However the TSX on average has about a P/E average of around 17 so on a TTM look they seem expensive, however, on a forward P/E ratio they are below the average. From the P/E ratio you can’t get a good picture of these companies and in general a P/E ratio is not the best metric to analyze stocks however, it should be looked at.

 

2.      Dividend

 

Dividend Yield
L	MRU	EMP
1.54%	1.27%	1.20%
Dividend Growth Rate
L	MRU	EMP
3.20%	14.70%	7.40%

 

From the dividend analysis we see several important things that will be highlighted. First off out of the three L has the highest yield at 1.54%! All three companies in my opinion are yielding far too low for a dividend investor. I tend to want to invest in companies that maintain a dividend of over 3% unless they stock has a great growth profile and I believe the company will grow to one day meet my 3% standard.

 

Dividend growth was looked at to determine if the yields are in line to grow. From those metrics the MRU and EMP seem to be growing their dividends nicely while L is growing at a much slower rate.

 

3.      Payout Ratio

 

Payout Ratio (2015)
L	MRU	EMP
68%	93%	19.80%

 

From the payout ratio we see that EMP is the only company that can really afford to increase their dividend by much. MRU which has the highest dividend growth rate is almost paying out 100% of its earnings, meaning the company has little room to grow. L also has a high payout ratio, I consider anything over 60% too high to give a company good growth.

 

From the above metrics, I can easily say that the Canadian Grocery store are fairly expensive, they have poor yields and with the exception of EMP the payout ratios are to high to enable the companies to grow the way I would like.

 

I do not believe I will take a position in either of these companies until the yields improve of the price/earnings drops drastically.