As an investor can you handle a boring stock, if you are making money. If so, Brian Madden of First Avenue Investment Counsel says he may have a play for you.
Madden, appearing on BNN Bloomberg’s “Market Call” recently says he likes Stella-Jones (Stella-Jones Stock quote, Chart, News, Analysts, Financials TSX:SJ).
“This is not a household name,” Madden said. “There’s not much sizzle here. It’s about as dull and “old economy” as it comes but it is core and it is tied to the infrastructure. They make utility poles for phone and hydro and they also make rail ties and they do a little bit of work in residential lumber.”
But despite the staid nature of the Nova Scotia company’s business, he said there is one surprising aspect to it that might appeal to certain investors.
“This company, interestingly enough actually is one of a very small number that you could say legitimately stands to benefit from climate change because the more you have wildfires and intense storms and hurricanes the more this stuff gets damaged and needs replacement.
As far as achieving a profile with investors, Madden says Stella Jones is “doing all the right things”.
“The momentum is there, it’s very strong,” he said. “We think they have visibility over the next few quarters if not longer, certainly in their two largest units.”
Shares of Stella-Jones Inc. Have climbed for $37.45 to a high of $70.57 in the past year. But the fund manager says he continues to see upside in the stock.
“Although it has run up nicely, it’s still an undemanding valuation -mid-teens multiple and should keep growing so we keep owning it.”
Not everyone is as bullish as Madden on SJ, however.
In an August report, CIBC Capital Markets analyst Hamir Patel said the recent run-up has his eye on valuation.
“With the shares trading close to their all-time highs, we recently reduced our rating on Stella-Jones to ‘neutral.’ While Stella-Jones may benefit from potential for a near-term tuck-in acquisition in ties, the story is looking increasingly catalyst-lite in our view, with estimates already reflecting robust pole demand growth through 2024, and limited prospects for material earnings growth in ties and res lumber from current levels,” the analyst said. “We estimate remaining M&A prospects in poles/ties have revenues only totaling $150-million (U.S.) (approximately 6 per cent of 2023 sales), a pipeline that will likely be spread over the next few years.”
At press time, shares of Stella-Jones were trading at $62.40.
What does Stella-Jones do? (via company handout)
About Stella-Jones Inc.
Stella-Jones (Toronto Stock Exchange: SJ) is North America’s leading producer of pressure-treated wood products. It supplies the continent’s major electrical utility and telecommunication companies with wood utility poles and North America’s Class 1, short line and commercial railway operators with railway ties and timbers. Stella-Jones also provides industrial products, which include wood for railway bridges and crossings, marine and foundation pilings, construction timbers, and coal tar-based products. Approximately 70 per cent to 75 per cent of the company’s sales are typically derived from these infrastructure-related product categories. Additionally, the company manufactures and distributes premium treated residential lumber and accessories to Canadian and American retailers for outdoor applications, with a significant portion of the business devoted to servicing the Canadian market through its national manufacturing and distribution network. The company’s common shares are listed on the Toronto Stock Exchange.