Thursday’s TSX breakouts: This rising stock recently realized a bullish ‘golden cross’

It is a stock pickers market with a broad representation of stocks on the positive breakouts list. There are 43 securities on the positive breakouts list (stocks with positive price momentum), with representation from every single sector in the S&P/TSX composite index. Meanwhile, there are just two stocks on the negative breakouts list (stocks with negative price momentum).

We are even seeing traction in lumber stocks with the price of lumber futures climbing to their highest level in over a year. Discussed below is one such lumber stock that is gaining momentum – Western Forest Products (WEF-T). Since February 11, the stock price has advanced 24 per cent, rising to $2.25 from $1.82.

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

The company

Western is the largest coastal B.C. lumber producer.

On Feb. 17, the company reported better-than-expected fourth-quarter 2015 results. Earnings before interest, taxes, depreciation and amortization (EBITDA) came in at $29.6-million, above the Street's forecast of 22.6-million.

Managements outlook for 2016 was encouraging, stating in their fourth-quarter results press release that, "We remain confident in our view that over the mid to long term the recovery in U.S. new home construction combined with growing demand from China and reduced lumber supply from the BC interior will deliver an improved pricing environment for commodity lumber products. In the near-term we expect commodity lumber pricing will continue to be volatile until U.S. new home construction returns to more normalized levels."

Management is seeing lumber demand in both Japan and China rise, and anticipates this will continue in the near-term remarking, "Recent improvement in lumber demand in Japan is expected to continue in the first half of 2016 supported by new home construction. Pricing is expected to remain competitive as global suppliers compete for market share. We anticipate shipments to Japan to be similar to last year, while pricing should benefit from a weaker CAD (Canadian dollar). Through the fourth quarter of 2015, lumber demand in China improved and our shipment volumes and pricing increased from the late third quarter lows. We anticipate demand for lumber in China will continue to improve through the first quarter of 2016, supported by low inventory levels and what appears to be an improving housing market."

Dividend policy

The company pays its shareholders a quarterly dividend of 2 cents per share, or 8 cents per year, equating to an annualized dividend yield of 3.6 per cent. Management has maintained the dividend at this level since 2013.

Valuation

Shares of Western Forest Products are valued on an enterprise value-to-EBITDA basis. According to Bloomberg, the stock is trading at a multiple of over six times the consensus 2016 estimate, which is relatively in-line with its historical three-year average.

Analysts' recommendations

According to Bloomberg, there are six buy recommendations, and no hold nor sell recommendations. The average one-year price target is $2.66, suggesting the share price may appreciate 18 per cent. Target prices range from a low of $2.40 to a high of $3. Individual price targets are $2.40, two at $2.50, $2.75, $2.80, and $3.

The consensus EBITDA estimate is $145-million in 2016, up 24 per cent from $117-million reported in 2015, and expected to rise to $162-million in 2017. The consensus earnings per share estimate is 25 cents in 2016 and 30 cents in 2017.

Chart Watch

The stock recently experienced a 'golden cross'- a bullish technical indicator that occurs when a shorter-term moving average (in this case, the 50-day moving average) crosses above a longer-term moving average (the 200-day moving average). Also positive is the stock's positive price action is on high volume. On Wednesday, over 5 million shares traded, this is well above its two-month average trading volume of 2 million shares.

On a year-to-date basis, the share price is basically unchanged, down less than half a per cent, and the stock is performing relatively in-line with its peers, West Fraser Timber (WFT), and Interfor (IFP-T), which are up 2.6 per cent and 1.6 per cent, respectively, year to date. Canfor (CFP-T) is a laggard with its share price down over 10 per cent year-to-date.

Looking at technical resistance and support levels, the stock has overhead resistance around $2.30, and then at $2.60 and $2.80. There is large downside support at $2, close to the stock's 50-day moving average (at $2.05) and 200-day moving average (at $2.03).

The relative strength index is at 65, suggesting the shares are nearing overbought territory, but not quite overbought just yet. Generally, a reading of 70 or higher indicates an overbought condition.

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 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. Securities on the positive breakouts list have displayed positive price momentum during this period. Securities on negative breakouts list have experienced negative price momentum.