How TransAlta Stock Gained 17% Last Month

The factors behind a sudden bearish and bullish trend are more important than the magnitude and timeline for a buy/sell decision.

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For most investors, a bull market trend in a stock is reason enough to consider adding it to your portfolio. If they can capitalize on the trend, they can enjoy the returns it may offer, and the factors driving the trend will become irrelevant.

But that’s rarely a good strategy, especially if you are planning to hold a bullish stock in your portfolio for a long time. In that case, understanding the factors driving the trend can help you make a more educated decision about buying or ignoring the stock.

Case in point: take TransAlta (TSX:TA) stock. It has risen 17% in the last 30 days alone, and the trajectory suggests that the stock might keep going up for a while.

The company

TransAlta markets itself as a “clean energy solutions” company. However, it’s essentially a power generation company that’s still heavily dependent upon natural gas as one of the primary power generation sources.

The company has a massive portfolio of power generation assets in the U.S., Canada, and Australia, including 24 wind projects (most of which are owned 100% by TransAlta), 25 hydroelectric facilities, 13 natural gas, and 26 solar facilities.

The company has a 100% ownership stake in most of these projects and at least a 50% stake in the remaining ones. The geographic diversity of the projects is another major strength of the company, allowing it to cater to a comprehensively spread-out market.

Several projects are in the pipeline, many expected to be completed by the end of this decade. Collectively, they may add somewhere between 4.5 gigawatts (GW) and 5.7 GW to the company’s total output capacity. However, the company has put some of its Alberta projects on hold (and cancelled one) due to the new laws the provincial government has passed.

The stock

In the last 12 months, the TransAlta stock mainly experienced a steady decline. From its yearly peak to its lowest point, the stock slumped about 40% over the course of roughly nine months. However, the stock started making a solid recovery from the slump and has risen over 17% in the last 30 days.

While it wasn’t the trigger for the stock’s recovery, the first-quarter results might sustain it and carry the momentum forward. The company exceeded expert expectations and posted decent earnings despite a significant decline in Alberta spot prices — something that significantly influences the company’s revenues.

The bold step the company has taken to scrap or hold its projects in the province also shows the market that the management is decisive. If we also factor in the amazingly low price-to-earnings ratio of about 4.7, which makes it highly attractively valued, TransAlta seems like a stock that may continue this trend of “gaining,” at least for a moderate amount of time.

Foolish takeaway

While the company is still connected to fossil-based electricity production, its portfolio is turning green at a rapid pace, making it a good pick from an ESG (environmental, social, and governance) investing perspective as well. The dividends can be another reason to buy the stock, but the 2.3% yield is paltry compared to the growth potential the stock is offering 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 Adam Othman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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