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Stock Trends

A solid infrastructure play amid market volatility Add to ...

The Stock: Stella-Jones Inc.

Recent price: $36.52


Stock markets are feeling the tremors from Japan's natural catastrophe. Materials and energy stocks have taken a hit; so, too, have insurance stocks with exposure to the Asian tragedy. However, some sectors may provide bullish investors with a steady course through the turmoil.

Although not immune to the market downdraft, big multinational industrials like Caterpillar and E.I. du Pont de Nemours remain in Stock Trends Bullish categories, above their 13-week moving average trend lines. Included in the industrial group are transport stocks, which have also held up relatively well in the market retreat.

The Trade:

Stella-Jones is a Quebec-based infrastructure play that flies below the radar of many investors. It's a major supplier of railway ties and utility poles.

The company has a relatively small market capitalization of $600-million and its stock does not trade that frequently (weekly volume usually amounts to only 0.15 per cent of outstanding shares). Both are important considerations for investors concerned about liquidity. But this stock has shown an impressive trend over the years. Strong 2010 financial results and a dividend hike suggest that the fundamentals supporting the current price are ample.

Stella-Jones had been hitting new 52-week highs through much of 2011, before the current market quiver. Last week, the stock retreated with the market to its 13-week moving average trend line, but quickly recovered to the $37 level, shy of its 2011 high. Look for this industrial stock to hold up well despite market volatility.

The Upside:

Despite their attractive trend, Stella-Jones shares are still trading with only about half the weekly volume they did during the stock's strong bullish trend from early 2005 to 2007, when the price peaked just shy of $50. An acceleration of trading volume is needed to help fuel further price momentum and provide another 20 per cent lift to the share price.

The Downside:

Perhaps the bullish sentiment is misplaced, and the market downdraft is too much for this small-cap stock. However, if the market calms, expect the share price to hold above $34.

Skot Kortje has been analyzing stock market trends for 15-years using trend analysis. His Stock Trends indicators have been published by The Globe and Mail since 1995. For more go to Stocktrends.ca

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