TransCanada: Pull-back is buy opportunity

Posted Nov 21st 2009 11:40AM by Joseph Lazzaro
Filed under: Stocks to Buy

TransCanada Corp.'s (TRP) shares, first recommended on May 11, 2009, at a price of $26.56, have pulled back, and the dip represents a buy opportunity, which is why I'm reiterating my buy rating for the stock.

TransCanada is 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 $1.45 annual dividend adds to the positive story.

Two other impressive stats: (1) TRP bought the proposed 289-mile Bison Pipeline, which runs from Wyoming's Powder River Basin to North Dakota and will interconnect to TRP pipeline systems, creating 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.

Add a 355-billion-cubic-feet of natural gas storage capacity in an era in which natural gas will play a larger role in energy consumption, and the scale is tipped well in favor of the buy rating. The First Call FY2009/FY2010 EPS estimates for TRP are $1.96 to $2.16.

Technically, TransCanada's stock chart is strong: an uptrend, with a new high registered in October. As noted, a recent pull-back to about $31 offers a second, good entry point.

Stock Analysis: TransCanada Corp. is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 25% position in TRP now; then buy another 25% in one month, if U.S. economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% 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: TransCanada, TRP