AltaGas Ltd (TSX: ALA) has not been doing well lately as it has seen its share price get cut in half this year. While it may be a bit disheartening to see all that red, the stock is simply too good of a buy for me to pass up buying more shares at this price.
Below are three reasons why I decided to invest more in AltaGas despite its recent decline.
The stock has tremendous value at its current price
AltaGas has been oversold for a while now and has hit new 52-week lows along the way. While its recent Q3 performance has put its price-to-earnings ratio (P/E) into the negative for now, the stock is trading well below its book value.
From a value perspective, the stock gives you a lot for your money. While its P/E ratio may scare off some investors, it’s really the result of just one earnings report that was pulled down by one-time expenses and a lot of noise related to a big acquisition.
AltaGas has generally produced strong, consistent financials, and there’s no reason to expect that it won’t bounce back from this setback.
There’s a lot of growth potential
With its massive $9 billion acquisition of WGL Holdings, Inc. now complete and sales getting a big boost from its inclusion, we’re getting a bit of a small glimpse at just how much of an impact it will have. Sales were double what they were a year ago, and that could just be the start.
The U.S. market is a big one and AltaGas could reach a lot more customers. With a strong presence there through this acquisition, this is a stock that could really take off once it starts seeing sales growth coupled with a strong bottom line. While it may not be visible today, patience will pay off for investors.
I’m not concerned about the dividend
News came out this week that AltaGas was slashing its dividend, which shouldn’t come as a big surprise given the stock was paying a high yield before its big decline, which had ballooned to a whopping 16% before the cut. Even with the reduction, it’s still a very good payout.
Bottom line
AltaGas is not as bad of a buy as the crashing stock price would have you suggest. While the temptation might certainly be there to just sell the stock since it seems destined to keep falling in price, that’s just as logical as believing that a stock that has been rising will only continue to do so. Sooner or later, investors will buy up the stock given all the value that it possesses.
Over the long term, AltaGas will likely prove to be a sound, stable investment. Unfortunately, when bad news comes out or when the stock struggles, investors can often be too quick to hit the sell button, which is what I believe has happened here.
