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Topic: Value Stocks

Value stocks Russel Metals and Stuart Olson have high yields, but only one’s a buy

Stuart Olson Russel Metals Bargain stocks

Today, we look at two value stocks that have the opportunity to enjoy a strong rebound when energy prices recover. Both Russel Metals and Stuart Olson (formerly Churchill Corp.) work with a variety of industrial clients, but both derive a significant portion of their revenues from oil and gas activity. We feel Russel is the better buy right now, but both stocks continue to reward investors with high dividend yields.

 

RUSSEL METALS (Toronto symbol RUS; www.russelmetals.com) is one of North America’s largest metal distributors, serving over 28,000 clients at 51 locations in Canada and 12 in the U.S.

In the three months ended June 30, 2017, the company’s revenue rose 30.9%, to $816.5 million from $623.1 million a year earlier. The increase came from higher shipments and selling prices. As well, sales for Russel’s energy-products business rose 68%. That operation supplies pipes for oil and gas drillers.

Earnings in the quarter were $32.5 million, or $0.52 a share. That’s a 98.2% increase from the $16.4 million, or $0.27 a share, a year earlier. The company benefitted from rising steel prices; they sharply increased the value of Russel’s inventory as well as its profit margins.

Strong balance sheet, high dividend

The company holds cash of $164.3 million, or $2.65 a share; its $296.1 million of long-term debt is a low 17% of its market cap. The stock yields a high 5.5%.

Oil and gas clients supply about 35% of the company’s revenue. That adds to its cyclical risk.

However, the stock has moved up 41% since the election of U.S. President Donald Trump in November 2016. That’s because of his intention to restrict low-cost steel imports, particularly from China. He has also promised to boost infrastructure spending. Those measures could lift steel prices and demand in the U.S.

Russel Metals is a buy.

The Profits from Hidden Value

Learn everything you need to know in 7 Pro Secrets to Value Investing for a FREE special report for you.

Canadian Value Stocks: How to Spot Undervalued Stocks PLUS! Our Top 4 Value Stocks

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Value stocks: Yielding a high 7.5%, Stuart Olson’s dividend appears safe

STUART OLSON INC. (Toronto symbol SOX; www.stuartolson.com), known before May 2014 as Churchill Corp., provides governments and businesses with construction, electrical contracting, earthmoving and insulation services. It mainly operates in Western Canada.

In the three months ended June 30, 2017, revenue rose 8.5%, to $246.4 million from $227.1 million a year earlier. The increase came from improving conditions in the Alberta market after last year’s wildfires. Increased activity on the company’s projects outside of that province also contributed to the gain.

Stuart Olson made $491,000, or $0.02 a share, in the latest quarter, compared to a loss of $3.5 million, or $0.13, a year earlier. The improvement reflects its higher revenue as well as aggressive cost-cutting measures. In addition, the year-ago period included significant restructuring costs.

The company ended the most-recent quarter with a backlog of $1.9 billion.

Stuart Olson holds cash of $21.9 million, or $0.81 a share. However, its long-term debt of $104.5 million is a high 75% of its $139.5 million market cap. That adds risk. The stock trades at 18.9 times the $0.27 a share the company is forecast to earn in 2017. However, that estimate could prove optimistic if the Alberta market remains sluggish. The company’s dividend yields a high 9.4% and appears safe.

OUR RECOMMENDATION: Stuart Olson is still a hold.

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