It is a busy day today in terms of news releases. Today's main event the expected interest rate hike announcement by the U.S. Federal Reserve at 2 p.m. (ET).
In term of Canadian economic data, February existing home sales figures will be released. In the U.S., key reports include weekly mortgage applications data, March Empire manufacturing data, inflation figures, homebuilder sentiment, and February retail sales numbers.
There are four companies in the S&P/TSX composite index scheduled to report their quarterly earnings results today, Quebecor Inc. (QBR.B-T), North West Co. Inc. (NWC-T), Klondex Mines Ltd. (KDX-T), and Medical Facilities Corp. (DR-T).
Briefly recapping Tuesday's stock market returns, all major North American equity indices closed with losses.
In the U.S., the Dow Jones Industrial Average fell 0.21 per cent, the S&P 500 index lost 0.34 per cent, and the Nasdaq composite index declined 0.32 per cent.
Turning to Canada, the S&P/TSX composite index tumbled 165 points, or 1.06 per cent, with only one sector closing in positive territory – the technology sector. There were 45 securities in the TSX Index that advanced, 201 securities declined in value, and three stocks closed the day unchanged.
The TSX Index is up 0.60 per cent year-to-date.
On today's TSX Breakouts report, there are 15 stocks on the positive breakouts list (stocks with positive price momentum), and there are 71 stocks are on the negative breakouts list (stocks with negative price momentum), over half of these stocks, 59 per cent to be exact, are from the energy sector.
As always, I try to appeal to a wide variety of investors. Featured today is a stock best suited for consideration by investors with a higher risk tolerance within a diversified portfolio. It is just below the $200-million market capitalization screening cut-off level. However, despite being a micro cap stock, there is reasonable liquidity and analyst coverage. The company has several near-term catalyst with analysts forecasting upside potential of between 29 per cent and 87 per cent over the next year. The company is Supreme Pharmaceuticals Inc. (SL-CN).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Toronto-based Supreme Pharmaceuticals, through its wholly-owned subsidiary 7 ACRES, is a licensed medical marijuana producer with operations in Kincardine, Ontario, which is approximately three hours north of Toronto. The company operates a hybrid 342,000 square foot greenhouse, which reduces the company's electricity costs due to the natural lighting capabilities and gives the company a cost advantage over other marijuana producers with conventional facilities and high lighting costs.
Several months ago, last November, the company submitted an application to Health Canada requesting authorization to sell bulk cannabis. In January, Health Canada conducted a site inspection, and a decision could be imminent – a potential catalyst for the stock if the news is positive. Conversely, a delay or negative decision could be negative for the share price.
The other potential catalyst for all marijuana stocks is the potential legalization of recreational marijuana in Canada, legislation is expected to be tabled by the Federal government in the spring.
In December, Supreme completed a $55-million bought deal private placement financing. The proceeds are earmarked to fund the expansion of the company's greenhouse facility.
Dividend policy
Management is focused on growth, and as such, the company currently does not pay its shareholders a dividend.
Financial forecasts
The Street is forecasting revenue of $2.5-million in fiscal 2017, $24-million in fiscal 2018, and $70.4-million in fiscal 2019. Analysts are expecting the company to be earnings before interest, taxes, depreciation and amortization (EBITDA) positive in fiscal 2018 and earnings per share (EPS) positive in fiscal 2019. The consensus EBITDA estimates are $1.5-million in fiscal 2018 and $21.2-million in fiscal 2019. The consensus EPS estimate is 10 cents in fiscal 2019. The company's fiscal year end is June 30.
These revenue forecasts are dwarfed by the revenue expectations from a dominant player in the industry, Canopy Growth Corp. (WEED-T), which will be added to the S&P/TSX composite index effective after the close on March 17. Canopy's market capitalization is just under $1.8-billion. The Street is anticipating Canopy's revenue to reach $42-million in fiscal 2017, $126-million in fiscal 2018, $341-million in fiscal 2019 and $448-million the following fiscal year.
Another major industry player is Aphria Inc. (APH-T). Its market capitalization is $744-million. The company has an attractive combination of robust growth expectations, low costs from its greenhouse operations, and a strong leadership. The Street is forecasting revenue of $20-million in fiscal 2017, $46-million in fiscal 2018, $136-million in fiscal 2019, and $216-million the following fiscal year. Aphria's leadership is strong with Vic Neufeld at the helm as the chief executive officer. He previously successfully led vitamin giant Jamieson Laboratories as their chief executive officer for over two decades. Furthermore, Arlene Dickinson, well-known from her role on Dragon's Den, joined Aphria's board of directors in late 2016.
Analysts' recommendations
This microcap stock, with a market capitalization of $186-million, has five analysts covering the company of which three analysts have "buy" recommendations and two analysts have "speculative buy" recommendations. The five firms providing research coverage are as follows in alphabetical order: Beacon Securities, Canaccord Genuity, Cormark Securities, Eight Capital, and M Partners.
Revised recommendations
In January, Vahan Ajamian, the analyst from Beacon Securities, raised his target price to $2.25 from $1.75.
Valuation
The stock can be valued using a discounted cash flow model. The consensus target price for Supreme is $2.28, implying 47 per cent upside potential to the share price over the next 12 months. Price targets range from a low of $2 (at Eight Capital) to a high of $2.90 (at Cormark Securities). Individual price targets are as follows in numerical order: $2, $2.10, $2.15, $2.25, and $2.90.
Chart watch
Year to date, Supreme's share price is up 7 per cent. In comparison, shares of Canopy Growth are up 21 per cent year-to-date, and shares of Aphria are up 31 per cent so far this year.
Month-to-date, the stock prices of many marijuana companies have languished and seen the positive momentum in their stock prices stall. Supreme's share price has declined 8 per cent, and industry peer, Canopy Growth Corp. has seen its stock price fall 7 per cent so far this month.
In terms of key resistance and support levels, the share price has overhead resistance around $1.75, near its 50-day moving average (at $1.73). The stock has downside support between $1.40 and $1.50. Failing that there is support around $1.15, close to its 200-day moving average (at $1.13).
The three month historical daily average trading volume is nearly 1.2-million shares.
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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.
Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.
A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.