Would you please offer your opinion on the future of Trans Alta ( TA- tsx). The stock seems to be lagging lately due probably to the fire etc. experience in the recent past.

Thank you in advance

Jim
Belleville, Ontario

Hey Jim,

Thanks for the assignment. You are correct that there have been disruptions to the business operations at some of TransAlta Corp.’s ( TA TSX) facilities. Most recently there has been an  extended outage at Genesee 3. The company has reported that they expect a hit to Q4 net income. The street anticipates the release of Q4 on or about February 24, 2012.

Let’s examine the charts for guidance as to what we might expect from TA.

The three year chart tells the tale of a stock that has been in a gentle up channel since mid 2010 but has recently broken below support on the lower rail. There is also a death cross forming which adds caution to the prospects for the shares.

The six month chart depicts the gap down in mid October, 2011 as the result of a bulk trade at $22.00. The trade took the legs out from under the advance that started after the August panic selling that hit all stocks.

Since the October high of $23.43 resistance has formed along the downtrend line. In addition the MACD and RSI look to be turning down. On a pull back I would look for support at $20.50 and below that at $20.00.

TA is a solid company with tangible assets and an attractive dividend. Management has positioned the organization for further growth and is looking to new technologies to meet the challenges associated with burning coal and natural gas to generate electricity. Currently over 75% of the company’s power capacity comes from plants utilizing those two fuels.

If you own the stock continue to hold it and reap the 5.5% dividend yield. If you are looking to buy the stock, do so on a pullback.

Make it a profitable day and happy capitalism!

Last week Andrew asked for a review of the  three dividend paying stocks he is holding. Andrew is 65 and wants to derive income and growth to fund his retirement. Many investors are in the same situation. They need to manage their assets during a period of extremely low interest rates. The current environment has forced many seniors into taking on higher risk to achieve their retirement goals.  Inter Pipeline Fund  ( IPL.UN TSX) will be the focus of this analysis.

The three year chart is an outstanding example of a stock that has had a great run but like Pembina Pipeline Corp. (PPL TSX) has started to flatten out. Andrew has 25% of his portfolio in IPL.UN. The same amount as he has invested in PPL.

The six month chart illustrates the resistance at $16.25 that the units have struggled with since May. There is support at $15.50 that was tested during the August sell off but investors quickly entered to buy at the lower levels.

The MACD signaled the up move in October, 2011  from $15.75 which provided the momentum to break above resistance at $16.25. IPL.UN offers a 5.9% dividend which is very attractive.

IPL.UN is another great example of a well researched stock that is meeting the declared  investment criteria of growth and income.

From a portfolio management approach Andrew’s portfolio is perhaps too concentrated in one sector of the economy. If you are going to have all your eggs in one basket you have to watch it like a hawk!

As to Andrew’s query about investing in the Canadian banking sector the simple answer is yes. Last week I attended the monthly meeting of the Oakville Chapter of the Canadian Society of Technical Analyst. Don Vialoux a well known and respected analyst from techtalk.com mentioned that the Canadian banking sector will soon enter its period of seasonal strength. The period runs from late October until January. If you are looking for a good entry point on the banks start conducting your due diligence to see if the risk profile meets your investment criteria.

Make it a profitable day and happy capitalism!

I want to continue to examine the dividend paying stocks that Andrew has bought to fund his retirement. He holds 25% of his portfolio in Pembina Pipeline Corp. (PPL TSX) and his objectives were to harvest growth and income from his assets. As a 65 year old retiree I assume he also wants to preserve capital.

PPL is offering a dividend yield of  6.1% which is is enticing to say the least. A review of the charts will provide greater insight into this heavy weight in Andrew’s holdings.

The three year chart is very similar to the three year chart for Keyera Corp. (KEY TSX)  that makes up 50% of Andrew’s portfolio with one major difference. It has been moving sideways in a range bound pattern since July of 2011. Not that moving sideways in a range is a bad thing but if one of your objectives is growth then you might want to consider trading within the range, if its wide enough, to achieve your objectives.

The six month chart indicates that the range is very tight with support at $24.50 and resistance at $25.50. The tight range does offer a 4% spread top to bottom so you will need good execution and diligent monitoring to capture the potential profits.

At the moment the MACD and RSI are both turning lower suggesting that PPL will be pulling back from these levels.

The shares of PPL have been generous in the past and the dividend is attractive. The only missing element is a sustained uptrend. The uptrend line was broken as the stock started its range bound trading in July.  The company is expected to report Q3 on October 31, 2011. Make sure to put that on your calendar. The forecast for 2011 is for lower earnings compared to  2010 with earnings growth expected to return in 2012.

PPL is in a holding pattern.A 6.1% dividend yield makes it worth collecting the rent while waiting for s0me of their expansion projects to come on stream.

Make it a profitable day and happy capitalism! 

Hi Lou,

Can you give me your views on Tonbridge Power? A resource analyst gave this a target of $7.00 back in April 2010. It was trading at $2.60 at that time and has declined ever since.

 Thanks,

 Stan

Hi Stan,

Thanks for the assignment. Tonbridge Power Inc. (TBZ TSXV) has undertaken a merchant approach to building an electrical power transmission line from Lethbridge, Alberta to Great Falls, Montana. The company also intends to build out expanded capacity on that line and to build a second line in the future. The idea behind TBZ is that in order to bring stranded green power to market, from wind in this case, someone has to step up and build out the transmission capacity using a different business model.

The analyst you mentioned had obviously accepted the company’s valuation model while the market is maintaining the existing valuation model for electrical power transmission lines. Once the primary line called  Montana Alberta Tie Ltd.  is completed and new streams of revenue starts to flow the market may be willing to up its valuation. Luckily the company expects the line to be operating by the second half of 2011. At that point all will be revealed, nothing will be hidden. Lets consult the charts for some guidance

The three year chart depicts the spike to $2.60 in April of 2010 and the steady decline ever since. The lesson here is that you have to take an analyst’s report as the starting point for your due diligence. Just because someone hangs a target price of $7.00 on a stock doesn’t mean that the stock won’t have to go through $1.50 to get there!  What we can also see is that the MACD generated a sell signal in April of 2010. The chart also indicates the upside resistance that TBZ has not been able to overcome in the last 12 months. 

The six month chart illustrates the inability to break above the 200 day moving average in March of 2011 and the sell signal generated by the MACD in that same period. Currently the MACD does appear to be turning higher but you have to keep in mind that TBZ is a thin trading stock. Its average daily volume over the last three months is just over 32,000 shares a day. It has only been able to generate above average volume in eight of the last thirty trading days. This is not the behavior of a market leader.

MAKE IT A MASSIVE WEEKEND AND HAPPY CAPITALISM!

Hi Lou,
I may be bottom fishing here but I was hoping for your opinion on Plutonic Power Corp. Several times it looks like support has been reached on the downward trend line, only to fail again. Are we there yet or is it best to wait for a double bottom before any buy.

Regards

Rob

Hi Rob,

The one thing you have to keep in mind when bottom fishing is to make sure that you have actually reached bottom! Finding new lows with you hard earned money is typically a painful process. Warren Buffett has always advised getting in late and leaving early and just ride a well established uptrend. The charts for Plutonic Power Corp. (PCC  TSX) will give us a better idea of trend, support, and resistance in searching for opportunity.

The three year chart is not what I would call particularly attractive. PCC was range bound with support at $3.00 and resistance at $4.00 over the period May 2009 to May of 2010. After May of this year the stock broke below support at $3.00 and then held on to $2.40 but quickly found new lows at $1.50. PCC has caught a bounce from the rock bottom at $1.50 and is coming out of an oversold situation.

The six month chart  illustrates the weakness in the stock and the inability to break the downtrend. There was an eight day rise that took the stock higher in August of 2010 but it was short lived.

The RSI signalled that the stock was oversold in October which attracted some buying. The MACD appears to be turning higher but notice the resistance at $2.20.

PCC has given bottom fishers lots of head fakes baiting them into the market only to shred their capital. At this point the stock is still fighting the downtrend and if you are thinking of stepping into this name don’t be surprised if you get a shock.

MAKE IT A MASSIVE WEEKEND AND HAPPY CAPITALISM!

Hello Lou,

I read you column on globeinvestor.com whenever it appears. What is your view on Stella-Jones, which I have held many times and sold for good profits. Is this a good time to get back in, as it seems to be basing. Although somewhat illiquid, it has not hurt me in the past. Look forward to your comments and the very best of the Festive Season to you and the family.

 

Best regards,

Jim

 

Hi Jim,

Stella Jones Inc. ( SJ TSX) specializes in producing industrial pressurized wood products such as utility poles and railway ties. The area of weakness in the business model for SJ has come in the railway sector.

With reduced freight traffic there has been less demand for railway ties and operators have informed the company that they do not intend to build inventory in Q4 to prepare for the 2010 maintenance cycle. In response to weakness in the segment SJ has negotiated the purchase of Tangent Rail Corp. to expand their footprint in the United States.

Looks like management at SJ is taking advantage of the opportunity to expand when the getting is good.  The rule of thumb in business is that in a slowing market you need to expand your share of market if your balance sheet is in good shape.

The three year chart provides a good look at the base you mentioned as the stock holds onto support in the $22.50 range. 

The three month chart provides a close up of the recent action and the resistance at $25.00. Volume is light at 3,696 average daily volume over the last 3 months.

If you decide to get on this ride you are entitled to the dividend of $0.36 a year which at these prices yields 1.4%.

I think that you might want to chip away at this one on pullbacks and build a position. When rail traffic picks up SJ will be in a good position to benefit.

Happy Capitalism!

As the markets have recovered somewhat from the lows, TRP is languishing.

What news if any is holding this stock down?

Regards,
Nizar

Hi Nizar,

When you look at TransCanada Corp. (TRP TSX) and its performance against the market you have to realize that the recovery from the lows was driven by a resurgence in investor appetite for risk which had them searching richer fare than the lean and heart healthy utility stocks.

Utility stocks are a safe haven that pay a dividend and reward investors that are looking for steady earnings and steady dividends.

There has been a break above the downtrend and a recovery from the March lows

The chart for TRP clearly shows that even this stalwart pipeline giant was not immune to the sell off that started in September of 2008. But there has been a break above the downtrend and a recovery from the March lows.

The stock appears to be range bound with support at $29 and resistance at $32 and  having cycled through the range twice since March. The other thing to consider with TRP is that at its closing price on Tuesday May 26 its dividend yield was 4.8%. Not a bad rent to collect while waiting for a return to better times.

The only thing holding TransCanada Corp back is that investors are more interested in dancing with  stocks that gave a  higher beta leaving the low beta, dividend paying beauties on the sidelines.

Happy Capitalism!