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Logs to be processed are pictured at Interfor’s Acorn Division mill in Delta, B.C., on Sept. 14, 2012. (Darryl Dyck for The Globe and Mail)
Logs to be processed are pictured at Interfor’s Acorn Division mill in Delta, B.C., on Sept. 14, 2012. (Darryl Dyck for The Globe and Mail)

Stock Pick

This lumber products stock treats investors well Add to ...

Validea’s pick of the week provides a detailed report on a company that scores well in the stock-screening service’s model portfolios. On Validea.ca, investors can analyze 1,000 Canadian stocks through 12 different guru-based models and get individual reports on each company. Globe Investor has a distribution agreement with Validea.ca. Try it.

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This Québec-based industrial firm Stella-Jones Inc. makes treated wood products, specializing in railway ties and timbers, as well as wood poles supplied to electrical utilities and telecom companies.

The company has a $1.4-billion market cap, and has grown earnings at a 20 per cent clip over the long haul (using an average of the three-, four-, and five year EPS growth rates), and revenues at a 19 per cent pace (using an average of the three-, four-, and five year sales growth rates). Both beat its industry averages, with the revenue figure nearly doubling it.

What the Validea Guru models like:

Earnings have declined just once in the past decade, a plus in the Warren Buffett-based strategy.

The Buffett model is also drawn by average 18.1 per cent return on equity over the past 10 years.

The Benjamin Graham-based model looks for a current ratio of 2.0, Stella-Jones’s ratio is 5.94, or nearly triple.

The Graham model also likes the $445-million in net current assets versus $343-million in long-term debt.

In Peter Lynch-based model one sign the stock is a good buy is a good PE-to-growth ratio: SJ has a 19.7 P/E ratio, 19.7 per cent long-term EPS growth rate, and 0.9 per cent dividend yield make for a yield adjusted PE-to-growth ratio of 0.96, which comes in just under the Lynch model’s 1.0 upper limit.

Click here for a complete breakdown of Validea’s investing guru report.

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