Monday's TSX breakouts: An oversold dividend stock that could be a buying opportunity

It was a quiet day in North American equity markets on Friday given news of the disturbing and horrific terrorism attack that occurred in France.

The S&P/TSX composite index lost 32 points, or 0.22 per cent to 14,482. Within the Index, there were 73 stocks that advanced, 163 securities declined, and four stocks were unchanged. Year-to-date, the index is up 11.32 per cent.

Today's Breakouts Report is brief with just 17 securities on the positive breakouts list (stocks with positive price momentum) and eight securities on the negative breakouts list (stocks with negative price momentum).

Discussed today is a stock that appears on the negative breakouts list. The share price has declined 19 per cent over the past two trading sessions. However, aggressive sell-offs have historically represented attractive buying opportunities for patient investors. The stock I am referring to is Canam Group Inc. (CAM-T).

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

The Company

Saint-Georges, Quebec-based Canam Group is a manufacturer of steel components, servicing three key construction markets: buildings, structural steel, and bridges.

On July 14, management announced that its second quarter results, to be released on August 4, will be hit by an one-time event, an after-tax reserve of $32-million to account for higher forecast project costs.  Consequently, analysts have revised their earnings forecasts and target prices down materially, and the stock price has nosedived.

Dividend Policy

The company pays shareholders a quarterly dividend of 4 cents per share or 16 cents on a yearly basis. This equates to an annualized yield of 1.5 per cent.  The company has paid shareholders this 4 cent per share dividend since January 2014, when the dividend was reinstated after being suspended in 2011.

Valuation

On a valuation basis, the stock is trading at an attractive valuation relative to historical levels. According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 5 times the 2017 consensus estimate, below its three-year historical average of 6.4 times.

Analysts' Recommendations

In recent days, analysts have been trimming their target prices and slashing their earnings forecasts for this year.

According to Bloomberg, the one-year price target is $15.20, which is based on four buy recommendations and one hold recommendation. This suggests the share price may appreciate nearly 42 per cent over the next 12 months. Target prices range from a low of $14 to a high of $16.50. Individual target prices are as follows: $14, two at $15, $15.50, and $16.50. Just four months ago, in March, the average one-year target price was $18.50.

The consensus earnings before interest, taxes, depreciation and amortization (EBITDA) forecast is $91-million in 2016, and anticipated to climb 52 per cent to $138-million in 2017. The Street is forecasting earnings per share (EPS) of 54 cents in 2016, rising to $1.36 in 2017. In March, the 2016 consensus EBITDA forecast was $134-million and the 2016 consensus EPS estimate was $1.33.

Chart Watch

For some investors, a feeling of déjà vu may have resurfaced. The stock price can be volatile.

The share price has plunged 19 per cent over the past two trading days on heavy volume. Last Thursday, over 2-million shares traded, and the following day, on July 15, approximately 886,000 shares traded. This is well above the two month historical average daily volume of 226,000 shares.

Looking back in history, on Oct. 29, 2014, the stock price tumbled 14 per cent in a single day to $9.67 from $11.24 the previous day after the company reported lower-than-expected third-quarter financial results. That being said, approximately three months later, the stock price had fully recouped this loss.

Furthermore, nearly five years ago, in April 2011, the share price plunged after management announced it was taking a $25-million after-tax reserve in the first quarter due to higher costs related to its BC Place stadium project.

The relative strength index is at 18, suggesting the shares are in currently in oversold territory. Generally, a reading at or below 30 indicates an oversold condition.  However, given the magnitude of the charge and its large impact on forecasted earnings, this stock may take time to recover with investors' confidence in management taking time to restore. Yet, for patient investors, price weakness has historically represented a buying opportunity.

The share price has been under pressure for the past two trading session as sellers push the stock price down. The stock has downside support around $10.

There is overhead resistance around $12, and after that around $13, which is close to both its 50-day moving average (at $12.85) and the stock's 200-day moving average (at $13.32).

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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 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.