I had a reader personally ask me about his SNC stock. Normally I would tell him to phone into BNN with the question, but I thought it’s probably worthy of a blog—given the news on the company of late. I’ll start this blog off with a disclaimer that we at ValueTrend own a position in SNC. Thankfully, we have 3 main position sizes when we buy a stock. They are 3%, 5%, or 7%. The choice of these three weighting comes down to the risk/reward potential we foresee via our analysis. We had traded SNC nicely within its former trading band of $52 to $58 twice in the past, and we were aiming at making it a hat-trick via a similar trading strategy. This time, because there were some risks surrounding a fine they were facing for a contract bribe, we elected to purchase our smallest position size on this stock a few months ago.
At the time of buying, we were unaware that the current Federal government, which has already been found guilty of violating a federal ethics regulations in the past, was involved so intimately with SNC. Given the other calamities the Canadian Fed has been involved in, we tend to avoid stocks that could have close ties to the current government. Frankly, we don’t trust them – and now, ordinary Canadians are learning just how deep down the rabbit hole the corruption of the current Canadian Federal government has gone.
In order to better understand the SNC situation, this video might help. Yes, it’s a PC video, but its factual, and undeniably disturbing to me as a shareholder of SNC, and as a Canadian citizen.
So what do we do now?
My associate Craig Aucoin, who does the fundamental analyses around here, tells me that approximately $30 of the current value of SNC shares lies within their ownership of the 407 toll highway in Ontario. It’s a profitable investment that SNC made many years ago, and they have eager buyers – should they desire a sale. The stock currently trades near $35. So that leaves the rest of the company trading for about $5/ share. Ok, now the fundamental guys have to figure out if the global operations, which will be curtailed going forward, are worth that $5. I’m not the guy to ask that question. So I thought I’d get a quote from Craig on the subject: “Significant risk still remains with the engineering portion of the company. If SNC is found guilty and are banned from future business projects in this country, the effects would be devastating. However, if the court case projects more positively, the stock might be looked back on as one of the better bargains out there. Only time will tell.”
Technically, the stock broke that $52, then $44 support with vigor recently. Right now, it’s hard to say if the stock will rally back to first support (now resistance) at $44. Its hanging out at 2015 support in the low $30’s. I must say that I am playing this one by ear. I’ll look for an opportunity to sell, but I do think that the wait might be worth it, given the floor of its $30/sh 407 highway value built into the stock. It may rally a bit before the court case results are concluded.
Keith’s BNN show on Friday of last week can be viewed here.
Invitation to students in Toronto to learn about Technical Analysis
I’ll be involved in a free event for students interested in learning the basics of Technical Analysis. See below for details of the event, which is taking place at Ryerson University this Thursday at 6:00pm.
I admire your courage trading a stock like SNC. I have a double tight filter for any Quebec based company. SNC and BBd.b never make it through that filter. Enjoy your blog!
I think you have a good filter..mind you, ATD.B and a very select few may (or may not) be ok. I recall similar problems with Quebecor.And of course the Quebec sponsorship scandal
Scandals strongly coinciding with liberal regimes https://www.theglobeandmail.com/canada/article-liberal-insider-was-convicted-in-quebec-sponsorship-scandal/
Agreed. We do own both ATD.B and GIB.A but any sign of political interference and we are out. Keep up the good work.
We hold GIB.a and as you say–we don’t see political interference. Having said that: we were aware of SNC’s prior sins, and we were aware that a deal had been struck with the Fed to amend those charges, but we didn’t realize that deal was unlawful AND we didn’t know the current Fed was unethically, corruptly and unlawfully trying to dissuade the Attorney General from following the law because there was an election coming (the PM offices words!). So, you never know–look at BBD.B and the back room deals–followed by absolutely no adherence to their word of “creating new jobs”–one year later after taking our money, they lay off 1700 people and look to lay off more in the coming year. Bad deals to buy votes.
Lesson: never say never with these guys in power.
Insightful commentary on the stock. I admire JWR for her stand even though she is a Liberal. Justine is not to bright trying to outsmart a lawyer. It is hearsay within my social circle that the corruption is still ongoing within the company. I don’t buy the jobs argument. The government is still spending the same amount of money on infrastructure. It will just go to other honest companies. Industry needs to be send a message that crime doesn’t pay. A case needs to be made of good corporate governance with the board of directors doing the job they are paid to do.
Jodi may have been a liberal, but she is not acting like one. BTW–the blog was written before her testimony–so my opinion on the corruption is now more than just an opinion. It is a statement of fact–you just have to watch the testimony to understand the truth–this is a youtube by The Rebel with commentary as she speaks: https://www.youtube.com/watch?v=WZ0V9RBQxZg
Several months after your original blog…
And today we are hearing about the scheme to cover up donations by SNC employees to the Liberals.
Are you still holding SNC, Keith?
No–we sold it a couple of weeks ago at $34. We figured we are better in rotating into a stock with more neartermed upside potential. Earnings are out soon–and that could push the stock down, and this, alongside the unveiling of more and more Federal government corruptness surrounding the case–we just decided we wanted off of this bad ride.