Friday’s TSX breakouts: This stock has a forecast return of 20% combined with a 4.3% yield

We are more than halfway through the month of June and the S&P/TSX composite index is down, but just slightly, declining 1.3 per cent.

On Thursday, the S&P/TSX composite index finished the day with a minor loss, falling 41 points, or 0.3 per cent. There were 85 stocks that closed higher, 145 stocks retreated, and four stocks were unchanged. Seven of the 10 sectors declined, with defensive sectors such as the Telecom and Utilities sectors advancing.

On today's breakouts report, there are 12 securities on the positive breakouts list (stocks with positive price momentum), half of which are gold stocks, and there are 27 securities on the negative breakouts list (stocks with negative price momentum).

Discussed today is an oversold, high dividend paying stock, Supremex Inc. (SXP-T).

A brief outline is provided below that may serve as a springboard for further fundamental research.

The company

Supremex is the largest envelope manufacturer in Canada with nine manufacturing plants in seven Canadian provinces and two plants in two U.S. states. It is one of the largest envelope manufacturers in North America. Envelopes represents over 90 per cent of the company's revenues. The company also produces packaging and specialty products such as labels and file folders, which represents less than 10 per cent of revenues.

Before the market opened on May 6, the company reported first quarter results that had little impact on the stock price. First-quarter revenues increased 19 per cent year-over-year. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) increased slightly, 1.9 per cent compared to the previous year. Adjusted earnings per share came in at 11 cents, versus 10 cents last year. The share price declined 5 cents to $5.60 that trading day.

Dividend policy

Management has been committed to returning capital to shareholders, announcing four dividend increases over the past three years. The company pays shareholders a quarterly dividend of 5.5 cents per share, or 22 cents on a yearly basis. This equates to an annualized dividend yield of 4.3 per cent.

Valuation

The stock is trading relatively in-line with its historical average. According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 5.3 times the 2017 consensus estimate, just slightly above its historical three-year average of 5 times.

Analysts' recommendations

According to Bloomberg, the one year price target is $6.13, which is based on three buy recommendations and one hold recommendation. This suggests the share price has approximately 20 per cent upside potential. Individual price targets are as follows: $5, $6.25, $6.50, and $6.75.

The consensus revenue estimate is $166-million in 2016, rising 4 per cent to $173-millon in 2017. The Street is forecasting EBITDA of $30.4-million in 2016, rising 8 per cent to $32.8-million in 2017. The consensus earnings per share estimate is 48 cents in 2016, increasing to 64 cents in 2017.

Chart watch

In recent months, the share price has rolled over, falling from over $6 in March to nearly $5. Year to date, the stock price is still in positive territory, with a small gain of 3.6 per cent.

The stock price is approaching downside support around $5, which is near its 200-day moving average (at $5.10), and failing that, there is support around $4.50.

The relative strength index is at 29, suggesting the shares are oversold. Generally, a reading at or below 30 indicates an oversold condition.There is upside resistance around $5.50, near its 50-day moving average (at $5.56), and after that, around $6.

The stock can be thinly traded, which can increase price volatility. The two-month average daily trading volume is approximately 38,000 shares.

The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company's dividend policy, analysts' recommendations, and provides a brief technical analysis for a security to provide readers with more information.

If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.

A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.

Below is a list of securities principally from 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. Securities on the positive breakouts list have displayed positive price momentum during this period. Securities on negative breakouts list have experienced negative price momentum.