Wednesday’s TSX breakouts: Three stocks trading near historical lows

On today's breakouts file, the defensive utility stocks dominate the list, once again.

At some point, there will be a rotation out of these defensive stocks and into the beaten down cyclical stocks. It may not hurt to trim some positions of these high-flying utilities as they rally, potentially buying them back at a lower price. However, that is just an opportunistic trading thought. For long-term income investors, maintaining positions in these defensive utility stocks is appropriate. It all depends on one's investment style.

While I typically do not like to highlight stocks on the negative breakouts list, as these securities have negative price momentum, often due to deteriorating fundamentals, some stocks are really getting oversold and are trading at steep discounts to their historical averages.

This is not to say that these stocks do not have further downside risk. Right now, the market trend is negative, cyclical stocks are under pressure and buyers are sitting on the sidelines, hesitant to step into the market. The downtrend for cyclical stocks remain in play, leaving many stocks vulnerable to further weakness.

The VIX index, a common measure of market volatility has not peaked and is at just 22, hardly anything to suggest there is rampant fear in the market nor capitulation.

Highlighted below are three stocks worth putting on your radar screen given their beaten down valuations.

First off, Quebec-based Stella Jones Inc. (SJ-T) represents a stock for investors to consider given its relatively defensive operations, focusing on railway ties and utility poles, its impressive management team, and the opportunity for the dividend to expand materially in the future. The Street is forecasting earnings to grow 22 per cent in 2016. The consensus earnings estimate is $2.02 in 2015, rising to $2.47 in 2016, and then forecast to rise 10 per cent to $2.71 in 2017.

On a valuation basis, the stock is trading below its 3-year historical average. Over the past three years, the stock has traded principally between 16 times and 23 times forward earnings, and is now trading at the low end of its historical trading range. The stock price has fallen over 23 per cent year-to-date, and its price-to-earnings (p/e) multiple has compressed to 16.3 times the 2016 consensus estimate.

A potential future catalyst is a potential material hike in the dividend. Right now, management remains focused on growth and pays shareholders a small quarterly dividend equating to an annualized yield of less than 1 per cent.

There are seven analysts whom cover the stock, four analysts have buy recommendations, three have hold recommendations, and there are no sell recommendations. The average one-year price target is $53.07, implying a potential price return of 32 per cent. Target prices range from a low of $48 to a high of $57.

Next up is Intertape Polymer GroupInc. (ITP-T), which develops and manufactures products such as duct tape, carton sealing tapes, industrial and specialty tapes, packaging films and woven products. The company is an industry leader, as North America's second-largest tape producer. It pays investor a quarterly dividend of 13 cents (U.S.) a share, equating to an annualized yield of over 4 per cent.

Like Stella-Jones, the stock price for Intertape has fallen sharply, 14 per cent year-to-date, and the stock is now trading at a p/e multiple near its historical lows. The stock is currently trading at a p/e multiple of 10.6 times the 2016 consensus estimate. The five-year historical average is 13.9 times, and the stock has traded principally in a range between 9 times and 18 times forward earnings.

The stock has five buy recommendations; there are no hold nor sell recommendations. The average one-year price target is $21, implying the stock price could appreciate by more than 31 per cent. Price targets range from $19 to $22.

Then there is Linamar Corp. (LNR-T), a global manufacturing company servicing the automotive and industrial markets. The stock has plunged 27 per cent year-to-date. The stock is trading at a p/e multiple of 7.2 times the 2016 consensus earnings estimate. Looking back over the past five years, this is the lowest p/e multiple that the stock has traded at. The five-year average forward p/e multiple is 11.3 times, and its previous low was 8 times back in early 2012.

Last week, one of Linamar's industry peers, United Rentals Inc. (URI-N), reported lower-than-expected fourth-quarter results, and the stock price plunged over 18 per cent. Linamar will not be reporting fourth-quarter results until March 9.

While the stock price has pulled back sharply, there is potential further downside risk. Technically, the stock is not yet oversold. The relative strength index is at 32. Generally, a reading at or below 30 suggests an oversold condition. The stock price may retrace back to $50, down to its October 2014 low.

This 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 stock 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 stock 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 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. Stocks on the positive breakouts list have displayed positive price momentum during this period. Stocks on negative breakouts list have experienced negative price momentum.