Famed investor Peter Lynch noted that insiders sell shares for many reasons, including tax purposes, estate planning, diversification, funding a large purchase, kids education, marriage breakdown or perhaps a charitable donation. On the other hand, they buy (like most of us) for one main reason: they think the stock is going higher. Therefore, it makes sense to pay particular attention when you see insider buying in a stock you are interested in.
Pipeline operator TC Energy Corp. (TRP, Financial) (TSX:TRP, Financial) is the target of heavy insider buying as the stock skirts multiyear lows.
According to recent reports by The Globe and Mail newspaper on Aug. 10, Stan Chapman, the executive vice president and chief operating officer for natural gas pipelines at TC Energy, purchased 5,400 shares at a price of $36.47 per share. This increased his total holdings in this account to 45,221 shares, amounting to an investment of approximately $197,000. François Poirier, the President and Chief Executive Officer, acquired 11,500 shares of TC Energy at a share price of $46.04, resulting in the increase of shares held in this account to a total of 106,950 shares. The total investment for this transaction surpassed $529,000. Corey Hessen, the Executive Vice-President and President of Power and Energy Solutions, made an investment of about US$250,000 in TC Energy shares. With an average share price of approximately US$35.73, he purchased 6,994 shares, marking the initiation of a position in this specific account. Joel Hunter, the Chief Financial Officer, also showed investment activity by purchasing TC Energy shares worth over US$141,000. Acquiring 4,000 shares at a cost of US$35.45 per share, he exercised control or direction over the account, leading to a total holding of 16,500 shares.Bevin Wirzba, serving as the Executive Vice-President and Group Executive for Canadian Natural Gas and Liquids Pipelines, as well as the President of Coastal GasLink, added 3,193 shares to his account. The cost per share was $47.056, resulting in a new total of 17,174 shares held in this account. The overall expenditure for these buys exceeded $150,000. These multiple buys indicate the company insiders smell great value.
TC Energy is involved in operating natural gas, oil and power generation assets in Canada and the United States. The company manages an extensive network of over 60,000 miles of oil and gas pipelines, holds more than 650 billion cubic feet of natural gas storage and operates around 4,300 megawatts of electric power.
Recently, the company unveiled a plan to separate its liquids (oil) pipeline business, particularly the original Keystone system, into an independent entity. The response from the market was rapid and clear, causing the shares to drop by over 16% at one point, compounding the already lowered stock levels.
However, despite this decline, TC Energy remains a prominent player in the realm of energy infrastructure development in North America. The recent negative fluctuations in share price is excessive. From this standpoint, the success or failure of the TC Energy split plan might not hold significant relevance. The portion of the company connected to oil transportation, accounting for about 15%, is relatively insignificant when compared to the company's current size and the future prospects in the gas and power sectors.
Recent decisions to invest in expanding liquified natural gas facilities, both new and existing ones, indicate the total North American LNG export capacity could double over the next 10 years, reaching nearly 30 billion cubic feet per day from the current 15 billion cubic feet. TC Energy is already responsible for moving a quarter of the natural gas across the continent, including 30% of the U.S. LNG feed gas. Additionally, the company will manage the transportation of all molecules destined for the LNG Canada project once it becomes operational later in the decade. Given the substantial growth in this continental expansion, considerable infrastructure development is essential, and the company is well-positioned to take full advantage of this opportunity.
In light of these factors, TC Energy's decision to separate its oil unit aligns with its strategic goals. The challenge, however, lies in the fact that projects related to gas and power, while having long-term potential, demand substantial upfront capital investments before generating positive cash flows. This can create a temporary imbalance between leverage and earnings. Such discrepancies are exacerbated when projects face delays or unexpected cost overruns, a situation TC Energy is familiar with due to its recent experience with the Coastal Gas Link pipeline in British Columbia. Given the company's weakened equity position and existing high leverage due to CGL cost overruns, TC Energy is aiming to restructure in preparation for the upcoming surge of opportunities, allowing it to capitalize on them effectively.
Despite this transitional period, the company's robust and mostly contracted asset base is poised to endure this period of uncertainty with expectations of improved performance in the years ahead. In a financial landscape where patience is scarce, those who possess it are likely to reap the rewards.
The GF Value Line indicates that TC Energy is modestly undervalued based on historical price multiples, past returns and estimates of future business performance.
Conclusion
TC Energy offers a substantial dividend yield of 7.8%, making it attractive to investors with the backbone to ride out the current volatility. Analysts are generally optimistic about the company's ability to maintain its dividend payments, even amidst disruptions caused by project delays. If your focus is on generating income, it might be prudent to retain this stock. The dividend is anticipated to remain secure, though it is worth noting that the company surprised investors by reducing dividends in 1999 due to financial difficulties at that time. However, such an occurrence seems unlikely now, particularly given the company's forthcoming plan to spin off its Liquids Pipelines segment next year. Any dividend reduction could potentially undermine investor confidence in this strategy.
TC Energy operates a vast network of natural gas pipelines spanning 58,000 miles. This intricate infrastructure plays a crucial role in transporting a significant portion of North America's natural gas consumption, accounting for 25% of the total volume. The company possesses ownership or stakes in seven distinct power generation facilities. With the increasing demand for renewable electricity throughout North America, TC Energy stands in an advantageous position to capitalize on these emerging prospects, leveraging its extensive 20-plus years of experience in the power industry. The company commands a substantial electricity generating capacity of 4,300 megawatts, a capability equivalent to powering over 4 million households. Impressively, 75% of TC Energy's power capacity operates emission-free, aligning with environmental sustainability goals.
Its comprehensive network of oil and liquids pipelines serves as a crucial link between Alberta's crude oil supplies and the refining markets in regions such as Illinois, Oklahoma, Texas and the U.S. Gulf Coast.
Further, TC Energy's pivotal role in energy transportation becomes evident as it facilitates the movement of 20% of the crude oil originating from the Western Canadian Sedimentary Basin through its well-established pipeline system.
The current stock valuation appears to reflect an oversold sentiment, stemming from concerns regarding the company's balance sheet strength. In my view, the extent of the market sell-off has been excessive. While the credibility of the management hinges on the success of the ongoing plan, the ultimate verdict will be shaped by the caliber of the company's assets and the opportunities that lie ahead. It is important to note TC Energy boasts top-tier assets, which should buoy the prospects for patient investors.
