Thursday’s TSX breakouts: Fear and skepticism are rising

There are two stocks (really only one name as COM DEV is holding its ground simply due to Honeywell's announced acquisition of the company) on the positive breakouts list, while the list of negative breakouts remained elevated at 125 names.

Fear and skepticism with investors are definitely rising . The Dow Jones Transportation Average is in bear market territory, with a decline from its peak of more than 20 per cent. The Dow Jones Industrial Average is still in correction territory, with a decline of more than 10 per cent from its peak, but still less than 20 per cent. The fear is that Dow Jones Industrial Average may follow the Transports lead and fall further, perhaps into bear market territory.

Featured today is a stock that is oversold on the negative breakouts list, Tricon Capital Group (TCN-T). While the stock is deeply oversold, a recovery in the share price may not be swift. Negative investor sentiment and perceived rising industry headwinds may limit a recovery in the stock price in the near-term. A brief overview is provided below that may serve as a springboard for further research.

Tricon gives investors exposure to the U.S. housing market as the company invests in U.S. single-family rental homes, multi-family properties, and manufactured housing communities. Tricon's business strategy is to invest in real estate and development projects across North America.

In September, the stock was added to the S&P/TSX composite index.

Investor demand for exposure to the U.S. housing market is weak. A rising interest rate environment is one concern, as higher rates are expected to translate into slowing housing market conditions. Last month, the U.S. Federal Reserve raised rates for the first time since 2006, with more rate hikes expected by investors in 2016. As well, economic growth concerns are growing.

In September, the company announced it was pulling the plug on its planned initial public offering (IPO) of Tricon Investment Partners, citing poor market conditions.

Gary Berman, the president and chief executive officer stated, "While we are disappointed that market conditions have not permitted us to proceed with the offering and create a dedicated vehicle for our land and homebuilding business at this time, Tricon remains optimistic about the United States housing recovery and the availability of attractive risk-adjusted returns therefrom. As such, we will continue to invest in land and homebuilding opportunities through direct investment at the parent company level and/or through our private investment vehicles. The fundamentals for U.S. housing are the best they have been in nearly a decade and so we remain excited about our investment opportunities and growth prospects going forward."

Dividend policy

The company has been paying shareholders a steady quarterly dividend of 6 cents per share, or 24 cents per annum. This equates to an annualized yield of 3 per cent.

Analysts' recommendations

According to Bloomberg, there are 8 analysts whom cover this stock, all of whom have buy recommendations. Target prices range from $12 to $14, with an average one-year price target of $12.91, implying a potential move higher in the share price by nearly 60 per cent.

The consensus EBITDA estimate is $63 million (U.S.) in 2015, increasing slightly to $66 million in 2016.

Technical analysis

Along with many stocks, Tricon's share price has been in a free-fall. The share price has fallen 11 per cent year-to-date, and over 26 per cent since early November.

The stock chart has looked weak for several months, with the shares making lower highs and lower lows. However, the relative strength index is at 17, reflecting an oversold condition. Generally, a reading at or below 30 indicates an oversold condition. This is not to say that the stock cannot remain oversold for some time, especially given the lack of buyers.

Also negative, the stock is trading below its 50-day and 200-day moving averages. As well, the 50-day moving average is below the 200-day moving average.

As always, I strongly encourage readers to consult a financial adviser, 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.