Friday’s TSX breakouts: Canada’s largest bank appears oversold

There are 15 stocks on the positive breakouts list, once again dominated by gold stocks. However, the recent rally with gold stocks appears more to do with the recent rally in the price of gold due to heightened geopolitical and global economic growth concerns, rather than on improving fundamentals. There are 114 stocks on the negative breakouts list. Notable, are that all of the major banks now appear on the list as all have experienced sharp sell-offs along with the market despite their high, stable dividends.

Highlighted today is Royal Bank of Canada (RY-T), which appears on our positive breakouts list. A brief overview is provided below that may serve as a springboard for further research.

In December, the company reported fourth-quarter results that were ahead of the Street's expectations. Adjusted earnings per share (eps) was $1.77, surpassing the $1.64 consensus estimate. However, the company's eps was boosted by low taxes paid during the quarter. Return-on-equity was 17.9 per cent, down from 19 per cent in the fourth-quarter of 2014. The stock was relatively unchanged, down a cent after the financial results were reported.

Dividend policy

The company pays shareholders a quarterly dividend of 79 cents per share, or $3.16 per annum, equating to an annualized yield of 4.5 per cent. The company announced two dividend increases in 2015.

Valuation

The stock is trading at a price-to-earnings multiple of under ten times the 2017 consensus earnings estimate, below its historical multiples. Its historical 5-year multiple is 10.9 times.

Analysts' recommendations

According to Bloomberg, there are nine analysts with buy recommendations, eight analysts with hold recommendations, and two analysts with sell commendations. Price targets range from a low of $71 to a high of 95, with the average price target at $81.86.

The consensus EPS estimate is $6.89 in 2016, up 2 per cent from $6.73 reported in 2015. The consensus eps estimate rises 5.5 per cent to $7.27 in 2017.

Several analysts on the Street have recently lowered their target prices in recent days. The analyst at CIBC World Markets maintained his "sector outperform" recommendation but reduced his price target to $80 from $83. The analyst at Macquarie maintained his "neutral" recommendation but lowered his price target to $77 from $82.

Technical analysis

The stock has downside support around $70, and failing that around $68. On August 24, 2015, when the stock market plunged, the stock price hit an intra-day low of $68.05 before closing at $71.17 that day. There is upside resistance around $72.50, then at $75, which is near its 50-day moving average, and following that at $76, near its 200-day moving average.

The relative strength index is at 29, suggesting the share are oversold. Generally, a reading at or below 30 indicates an oversold condition.

As always, I strongly encourage readers to consult a financial advisor, and to do their own proper due diligence before taking any investment action.

Below is a list of stocks in the S&P/TSX composite index and the S&P/TSX Small Cap index that are technically breaking out, reaching new 55-day highs or lows.