We have noted your recent comments on this company and, decided to initiate a 1.5% position at $78, after the recent pullback, following company's results. We had no infrastructure/consultancy exposure before in our portfolios and have been low on industrial sector Just wondering, if our move makes sense.
Thank You
The growth model portfolio's benchmark ETF, the iShares S&P/TSX Smallcap ETF (XCS) has recently seen some weakness and is now negative for 2023 year-to-date. Likewise, there are other positions in the growth model portfolio which have seen some weakness, due to their smaller size and heavy growth exposure. STN, on the other hand, has historically been more of a stable, reasonable growth name, and has outperformed a lot of the smaller, higher growth names in the model portfolio since adding it late last year.
These factors, combined with its valuation now becoming on the high end of its historical averages led us to reduce the position to add to other names that we see better entry points on. STN currently trades at a 21X forward P/E, and this is largely in line with the recent few years, although, since 2003, its forward P/E mostly fluctuated between 10X and 20X. We are comfortable with a 2.0% position, and another part of the rationale is to allocate to names that have the potential for higher growth rates (specifically NVEI and NBLY in this case).
We continue to like STN, as it's a fundamentally solid company with strong and expanding profit margins, a good free cash flow profile, and a healthy balance sheet. In the context of reducing the position in the growth model portfolio, it was less on the fundamentals of STN and more centered around a unique opportunity to capitalize on strength in one name to add to a higher growth name at a discount.