Thursday's TSX breakouts: This stock has 9 ‘buy’ calls and expectation of a double-digit gain

Investors are sitting on the fence awaiting the U.S. non-farm payrolls data released on Friday with the Street expecting to see 180,000 jobs created in August. The lack of buyers caused markets to drift slightly lower on Wednesday.

In the U.S., the Dow Jones Industrial Average fell 0.29 per cent, the S&P 500 Index declined 0.24 per cent, and Nasdaq composite gave up 0.19 per cent.

In Canada, the S&P/TSX composite index posted a steeper loss of 87 points, or 0.59 per cent to close at 14,598 given the 3.6 per cent sell-off in the price of crude oil. The number of stocks declining outnumbered the number of gainers. There were 75 securities in the Index that advanced, 159 securities declined, and six stocks closed the day unchanged.

The S&P/TSX composite index closed the month of August relatively unchanged, up just 0.10 per cent. The index is up 3.79 per cent quarter to date, and has a gain of 12.21 per cent year to date.

Turning to today's Breakouts Report, there are 29 securities on the positive breakouts list (stocks with positive price momentum) and the number of stocks on the negative breakouts list (stocks with negative price momentum) continues to climb and is now up to 40.

Interest rate sensitive securities continue to surface on the negative breakouts list with several more real estate investment trusts added to today's list. As well, utility stocks, Fortis Inc. (FTS-T) and TransAlta Corp. (TA-T) surfaced on the negative breakouts list. In the future, the pullback in these securities may represent an attractive buying opportunity for long-term investors given their attractive yields. However, the slide is likely to persist in the near-term, with valuations become more compelling.

Discussed today is a stock that has caught analysts attention with 9 'buy' recommendations. The security highlighted today is one that appears on the positive breakouts list, Knight Therapeutics Inc. (GUD-T). Keep in mind, the month of September, historically, has typically been a volatile month. This stock offers investors some downside protection given its strong balance sheet.

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

The company

Montreal-based Knight Therapeutics is a pharmaceutical company founded in 2014 by Jonathan Goodman, the previous chief executive and co-founder of Paladin Labs, which was acquired by Endo Health Solutions. Prior to being acquired, Paladin's stock price enjoyed a stellar rally owing to its solid fundamentals. The company reported 19 consecutive years of record revenues and the share price climbed from $1.50 to $142 a share. Mr. Goodman's goal with Knight is to replicate his successful strategy at Paladin of acquiring or working in partnership with other pharmaceutical companies (also known as in-licensing) in order to develop and market new products.

During the second quarter the company completed a bought deal equity financing, raising approximately $230-million through the issuance of 28.75-million shares at a price of $8 per share. The company has a solid balance sheet to support its growth by acquisition strategy with no debt and over $638-million in cash and cash equivalents as of June 30.

In terms of acquisition opportunities, on the second quarter conference call held on August 11, Jeffrey Kadanoff, the chief financial officer, said that the company is, "Currently looking at over 80 different deals and we're hoping to close them as quickly as we can, as quickly as it makes sense." Mr. Goodman, the president and chief executive officer, added, "We are looking at larger transactions."

Related: This stock features unanimous 'buy' calls and an expected average return of 71%

Dividend policy

The company is focused on growth and does not pay its shareholders a dividend.

Valuation

Many analysts determine their target prices for the stock using a sum-of-the-parts approach. The average one-year target price is $9.65, implying a potential gain of 10 per cent over the next 12 months. Target prices range from a low of $8.50 to a high of $12. Individual target prices are as follows: $8.50, three at $9, two at $9.50, three at $10, and $12.

Analysts' recommendations

According to Bloomberg, there are ten analysts whom have issued research reports in 2016, nine of whom have 'buy' recommendations and one analyst has a 'hold' recommendation.

Analysts have been revising their top line forecasts higher. At the beginning of the third quarter, the consensus revenue estimate was $4.3-million for 2016 and $12.9-millon for 2017. The current consensus revenue estimate is $4.86-million in 2016, and forecast to jump to $19.2-million in 2017. The company is expected to turn EBITDA positive next year, the consensus EBITDA estimate is $5-million with the 2017 consensus earnings per share estimate at 21 cents.

Chart watch

Year to date, the share price is up over 13 per cent. This small cap health care stock, with a market capitalization of $1.16-billion, is not include in the S&P/TSX composite index; however, if it were, it would be one of the top performing stocks in the Index, second only to Chartwell Retirement Residences (CSH.UN-T).

The share price has been range bound in recent months. Since April, the share price has been consolidating, or trading sideways, principally between $8 and $8.70, and it is now trading at the upper end of that range, and we could see the share price drift back down as it remains range bound, until there is acquisition news. The stock is in overbought territory with the relative strength index at 70. Generally, a reading of 70 or higher indicates an overbought condition.

The stock has initial upside resistance around $9, and large overhead resistance at $10, which is close to its February 2015 peak of $9.91.

There is initial downside support at its 50-day moving average (at $8.33), and failing that there is support in the $7.80 to $8.00 range, its 200-day moving average falls in this range (at $7.82).

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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 notreplace 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.