Today, we look at a stock that appears to be taking the right approach to growth by acquisition. Big acquisitions can add risk, but Transcontinental’s purchase of a U.S. packaging firm looks like a good fit. Because it is in the printing and publishing business, an industry that many assume to be in decline, Transcontinental is a stock that is often overlooked by brokers and the media. But thanks to its ability to adapt to changing conditions and pursue productive growth strategies, we view Transcontinental as a value stock with great promise. Its $0.68 dividend appears safe and yields 3.5%.

Transcontinental recently announced a big acquisition. Expanding in this way adds risk, as insiders at the companies being sold know a lot more about them than the buyers. However, this deal will leave the company less reliant on its flyer-printing and newspaper business, where revenue is shrinking.

TRANSCONTINENTAL INC. (Toronto symbol TCL.A; www.tctranscontinental.com) is Canada’s leading printer of flyers, magazines, newspapers and books. It also publishes magazines and newspapers.

Transcontinental recently purchased Brooklyn, New York-based Ultra Flex Packaging, a privately held maker of flexible plastic packages for candy, coffee and other foods.

The company paid $80 million U.S. for Ultra Flex, which will add $72 million U.S. to its annual revenue and $12 million to its gross profits. This purchase looks like a good fit with U.S.-based Capri Packaging, which makes plastic bags and pouches for cheese and other dairy products. Transcontinental paid $146.1 million for Capri in May 2014.

Value stocks: Lower Canadian dollar boosts value of Transcontinental’s U.S. sales

Meanwhile, the company’s earnings rose 30.5% in its 2015 third quarter, which ended July 31, 2015, to $48.8 million, or $0.62 a share. A year earlier, Transcontinental earned $37.4 million, or $0.48 a share.

Revenue slipped 0.2%, to $481.9 million from $483.0 million. Contributions from acquisitions offset lower revenue from printing advertising flyers, particularly after Target closed its 133 Canadian stores. The lower Canadian dollar also boosted the value of its U.S. sales.

As well, the company announced several new printing contracts, including a deal to print Canada’s census forms in 2016. Combined, these deals will add $30 million to its annual revenue. The stock has risen 45% in the past year and trades at a low 8.5 times its likely full-year earnings of $2.36 a share. The $0.68 dividend yields 3.4%.

Recommendation in The Successful Investor: BUY

Earlier this week, we profiled a Canadian stock that we feel has taken on excessive risk with its growth-by-acquisition strategy. Read Cott Corp. takes risky path to growth with flood of acquisitions.

For a recent report on a value stock that is making acquisitions ahead of a recovery in the oil patch, read Takeovers add to Crescent Point Energy’s growth potential when oil recovers.

Do you think the printed word is on its way out? Or do you think the domination of electronic media has been overstated?