Is it Time to Buy Low on SNC-Lavalin Group Inc. (TSX:SNC) Stock?

SNC-Lavalin Group Inc. (TSX:SNC) has been pummeled due to adjusted profit forecasts and is taking hits in the media in the midst of a political scandal. That does not mean you should write it off.

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All the way back in September 2017, I’d discussed statements by Bridgewater Associates founder Ray Dalio. Dalio predicted that politics would play a bigger role in determining the trajectory of markets over the coming years. That prediction has been prescient for those who have followed the Canadian stock market closely over the past year.

There’s been the spat with Saudi Arabia, the election of Doug Ford and subsequent departure of Hydro One’s leadership, the tensions ignited with China over the arrest of Meng Wanzhou, and now the scandal involving SNC-Lavalin (TSX:SNC). International and domestic politics have played a big role in the market over the past several months.

A report by The Globe and Mail set off a firestorm in the Canadian media over allegations that the Prime Minister’s office attempted to influence Justice Minister and Attorney General Jody Wilson-Raybould in an ongoing prosecution of SNC-Lavalin. Jody Wilson-Raybould formally resigned on February 12, igniting more speculation. The scandal will undoubtedly consume Canadian media in the lead-up to the fall federal election, but will it negatively impact SNC-Lavalin stock? Further, could now be a buy-low opportunity?

In late January, SNC-Lavalin stock experienced its largest single-day drop in nearly 30 years after the company warned that it would miss its full-year profit target. This was due to a dispute with a client related to a mining project in Latin America. The company was also hurt by challenges in the oil and gas sector in the Middle East, particularly when it came to its dealings with Saudi Arabia.

On February 11, SNC-Lavalin cut its profit forecast a second time, citing the same dispute with its Latin American mining client. The company revealed that it may be forced to incur a $350 million loss in the fourth quarter. It was forced to drop its adjusted profit forecast to $1.20-1.35 per share for the year compared to $2.15-2.30, which was projected previously.

These setbacks have beaten down the stock in recent weeks, but SNC-Lavalin is still well positioned to bounce back in 2019. In its 2019 outlook, management forecasts adjusted profit in the range of $3.00-3.20. With the stock hovering around 52-week lows, this may be an opportune time for savvy investors to take a gamble.

SNC-Lavalin stock boasted an RSI of 24 as of close on February 12. This puts shares well into oversold territory. It is one of the few technically oversold equities on an index that has gorged on gains in 2019 so far.

SNC-Lavalin is also an attractive option for income investors. The stock last paid out a quarterly dividend of $0.287 per share. This represents a solid 3.3% yield. SNC-Lavalin has achieved 18 consecutive years of dividend growth. This makes it in elite company on the TSX.

Investors on the hunt for bargain on the TSX are in for a long search right now. SNC-Lavalin is one of the few equities that is technically oversold, while also boasting nearly two decades of dividend growth. I am going with the contrarian pick; I like SNC-Lavalin stock right now.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Ambrose O'Callaghan owns shares of HYDRO ONE LIMITED.

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