Aecon Group Inc (ARE.TO)

Chart shows a series of higher lows, but no higher highs. Like all construction stocks, this is very volatile. 2 words of advice. 1.) Don’t put too much of your portfolio into a stock like this. 2.) If there is good news and the stock picks up, remember to take your profits. Dividend yield of 3%.

The longer term trend is up. It is coming off the bottom of its trading range. As long as it stays in the general uptrend, it would stay with the story. You have to put up with the volatility.

A good company. Results are a little weaker than what he would like. They used to earn a 9% ROC, but is now down to 5%. It doesn’t look that cheap right now.

(A Top Pick Sept 23/16. Up 1%.) Had thought at the time that 2017 was going to be an off year, but anticipates very good growth for infrastructure beyond this year. They just put themselves up for sale. Trading at around 6.4, and he thinks it should fetch a multiple of around 8.5 if it gets sold. Very good balance sheet.

(A Top Pick Feb 17/16. Total return 7%.) Convertible 5.5% bond due Dec 1/18.

He doesn’t know the seasonality of this particular stock. However, the company has been in the news in the last little while, as they have put themselves up for sale. The technical impact of this is very positive. The stock had been in an upward trend for the past 8 months, and on that news, it broke into a new high. It has overhead resistance at around $19.30. Looks quite interesting at current prices.

He is positive on the construction side. Prefers SNC Lavalin (SNC-T), who also has a broad range of services to offer. Anybody in that business is going to do well in the next little while.

Has just announced that it is exploring a potential sale of the company. If you own it, he would wait to see what happens. Construction is a lumpy business.

The breakup value of the company is around $21-$22. He would hold on for sure right now because they are entertaining offers. The stock is not up that much yet. Watch it like a hawk and if you see it at $18-$19, then that is when you consider selling. He holds SNC-T. ARE-T is primarily Canada and is cyclical. It has the most energy exposure.

Convertible 5.5% bond due Dec 1/18. (Top Pick Feb 17/16) He got out several quarters ago. It had run up and was just yielding 4%. He could reload if it ever came off.

There are a handful of engineering/construction companies in Canada. This had a big run up with all the big infrastructure stocks. A pretty good company. Very cheap valuation. The quarters kind of bounce around depending on whether they have a contract hitting the quarter or not. A solid name, but would prefer WSP Global (WSP-T), more of an international company that has made some great acquisitions. Even Stantec (STN-T) looks a little better on their history and long-term record of profitability.

He tends to favour engineering names such as SNC-Lavalin (SNC-T). Construction names are a lower margin business, and end up being hyper competitive, and results never seem to trickle down to the common shareholder. If looking for exposure to construction and stimulus spending, focus more on the engineering side.

Probably not a bad thing to be buying now. Trading in line with its 3-year average, but cheaper than its peers. 2017 is probably going to be an off year for them in terms of revenues. Beyond that, he sees really nice growth. They have a really good infrastructure backlog which will really help them. Just increased their dividend by 8.2%. Very strong balance sheet. He sees good growth into 2018.

(A Top Pick March 16/16. Up 10%.) He still likes this. Sold his holdings at around $18.75 as he thought it had got ahead of the macro infrastructure. It then had a big dip and he started acquiring it again in late 2016.

In Canadian budgets, there is a real emphasis on infrastructure spending. There aren’t many infrastructure players in Canada that are public, but this is one of the oldest. They are spread across the country and are one of the leading providers, so they will be a beneficiary of increased infrastructure spending. As a result, the stock is bounced quite nicely off its bottom, and is probably trading at a reasonable range. Keep in mind that margins are quite thin. One of his favourite names in this space.