Monday’s TSX breakouts: 17 buys on an oversold consumer stock

Investors continue to shy away from cyclical stocks, choosing to accumulate defensive stocks for the time being.

Over 50 per cent of the names on the positive price breakouts list are gold and silver stocks. As well, utilities stocks continue to remain in favour.

On today's breakout report, there are 37 stocks on the positive breakouts list, of which 19 are gold stocks, four are silver stocks, and five are utility companies. The downside list is rather contained, with just 22 names. Technology stocks, including top performers from 2015 such as Kinaxis and Enghouse Systems, are under pressure. There are seven tech stocks, representing 32 per cent of names on the negative breakouts list.

Today, equity markets opened lower for all major North American indexes. The price of oil is down over 3 per cent, below the $30 (U.S.) level.

As the list of negative breakouts grows, there are buying opportunities emerging. Typically, I prefer to focus on the positive breakouts, as stocks with positive momentum due to strong fundamentals tend to continue to outperform. However, the list of negative breakouts is becoming more interesting. Given global growth concerns, I anticipate more cyclical stocks will decline in value, creating future buying opportunities – that being said, it still feels premature to be accumulating cyclical stocks.

Discussed today is a Montreal-based, Gildan Activewear Inc. (GIL-T), a consumer stock that investors may want to put on their radar screen; however, wait for the markets and the stock to stabilize - don't try to catch a falling knife. This stock has fallen to a 52-week low, and since the beginning of the year has declined 15 per cent.

Gildan manufactures clothing such as T-shirts, fleece clothing, underwear, socks, and hosiery through its portfolio of company-owned brands such as Gildan, Gold Toe, Secret, and Silks.

The company will be reporting fourth-quarter results on February 24, before the markets open, which can create further volatility in the stock price. Last quarter, for instance, the stock price gained nearly 5 per cent on the day it reported its third-quarter results. Prior to that, in July, the stock price declined nearly 8 per cent the day the company reported its second-quarter results. Finally, after reporting its first-quarter results in May, the stock price gained 6 per cent that day.

The consensus earnings per share estimate is 28 cents (U.S.)

Dividend policy

This growth company pays shareholders a quarterly dividend of 6.5 cents (U.S.) per share, or 26 cents per year, equating to an annualized dividend yield of 1.1 per cent. Management has been periodically increasing its dividend.

Valuation

The stock is trading at a price-to-earnings (p/e) multiple of 13.3 times the 2016 consensus earnings estimate (keep in mind the company's earnings are reported in U.S. dollars). This is well below its historical three year average p/e multiple of 17.8 times, and at low end of its historical range over the past three years.

Analysts' recommendations

According to Bloomberg, looking at analysts' recommendations updated since November 2015, there are 17 analysts with buy recommendations, three analysts with hold recommendations, and there are no sell recommendation. The average one-year price target is $47.07 (Canadian), implying a potential price return of 41 per cent over the next year.

The consensus earnings per share forecast is $1.46 (U.S.) in 2015, advancing 23 per cent to $1.80 in 2016. Earnings per share is forecast to reach $2.04 in 2017.

Chart watch

This stock chart is weak with the shares in a downtrend, marked by lower highs and lower lows. In addition, the stock price has been falling on volume, which is bearish.

Looking at the downside, there is technical support around $33 (Canadian), and failing that, the next major support level is near $30.

There is technical resistance around $36, and then around $39, which is near its 50-day moving average. There is also major upside resistance at $40, close to the stock's 200-day moving average.

The relative strength index is at 22, suggesting the stock is oversold. Generally, a reading at or below 30 indicates an oversold condition. That being said, a stock can remain oversold for some time.

This 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 stock 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 stock 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 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. Stocks on the positive breakouts list have displayed positive price momentum during this period. Stocks on negative breakouts list have experienced negative price momentum.