TransCanada is poised for the next natural gas boom

Posted Sep 14th 2009 3:20PM by Joseph Lazzaro
Filed under: Stocks to Buy

TransCanada Corp. (NYSE: TRP), which I had placed in the high-risk category earlier this, is now a moderate-risk play, and I'm also reiterating my Buy rating for it, first recommended on May 11, 2009, at a price of $26.56.

TransCanada is a natural gas play with promise: it's a natural gas transmission and storage company that also owns oil assets and electric power generation assets (including 19 wholly-owned power plants). A solid $1.41 annual dividend adds to the positive story.

Here are two other impressive stats: 1) TransCanada bought the proposed 289-mile Bison Pipeline, which runs from Wyoming's Powder River Basin to North Dakota, and will interconnect to TransCanada pipeline systems, create a larger system; and 2) the company bought the Ravenswood Generating Facility for $2.8 billion, giving it exposure to New York's lucrative power markets. The First Call FY2009/FY2010 EPS estimates for TRP are $1.90 to $2.10.

Stock Analysis: TransCanada is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 50% position in TRP now; then buy another 25% in three months, if U.S. and Canadian economic conditions don't worsen substantially. Under any circumstance, don't buy more than 75% of your TRP position before December 2009. Sell/stop loss if you were to buy shares in this company: $18.

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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.

Tags: Bison Pipeline, natural gas, Ravenswood, TransCanada Corp., TRP