A stock to hold forever, or just a flash in the pan? Anything out of the usual remit of banking and utilities stocks tends to get shoved to one side by the mainstream media — especially when fears of slowing global growth are hitting the headlines. So, is the following stock one to buy and hold for the long run, or is its popularity a fad? Let’s drill down into the data and find out.
Transcontinental has become something of a stock commentator favourite of late. With a decent valuation, a healthy balance sheet, and dividends to boot, it’s easy to see why the printing and packaging stock has risen to the top of pundits’ wish lists.
A market cap of $2 billion puts this stock in a lower league, though it does qualify it as a defensive contender. A one-year past earnings growth of 12.3% isn’t too far off the industry average for the same period of 11.7%, though it does see a slowdown of the runaway growth it experienced over the last five years of 35.2%.
Still good value, with decent multiples
Discounted by 28% of its future cash flow value, you really are getting good value for money if you buy this one today. Look at that low P/E ratio of 8 times earnings, backed up by a sober P/B of 1.2 times book. A 7.4% expected annual growth in earnings over the next couple years means that your dividends could continue to grow, even if you take your eye off them.
Speaking of which, a dividend yield of 3.84% at today’s price is one of the strongest buying points here; a return on equity of 14% last year is more or less in line with the rest of the TSX index, and shows that Transcontinental is fairly good quality. A high debt level of 94.2% of net worth is a bit of a worry though, and buyers with little appetite for risk may wish to look elsewhere.
This stock seems to have insider confidence wrapped up
Insider buying in the last six months has been strong, suggesting that those in the know are expecting good things for the company. This seems a particularly pertinent signifier at the moment, with a global downturn highlighting a need for insider knowledge. Several high-profile stocks that look otherwise impeccable are showing insider selling, while others are looking positively chipper — the takeaway being, check all the data before you get into a position.
Competitors like the Berry Global Group, Sonoco Products, and Bemis Company could give you a run for your money if you want to get some all-American exposure to the same industry or are simply a little light on packaging-related stocks.
The bottom line
Transcontinental remains one of the rare gems of the TSX index. It has a very attractive value and pays a decent dividend. There is some growth there, too, which makes it a strong pick for investors looking for dividends that grow without too much pruning of one’s portfolio. This stock has its market cornered, and its future looks assured. All told, Transcontinental is a strong buy for traditional long-term investors who like their passive income.
Iain Butler has stumbled upon a little-owned stock he believes could be one of the greatest discoveries of his almost 20 years as a professional investor.
This is your chance to get in early on of what could prove to be a very special investment recommendation. Think about how many investing trends you've missed out on, even though you knew they were going to be big. Don't let that happen again.
Fool contributor Victoria Hetherington has no position in any of the stocks mentioned.