Buyers remain on the sidelines ahead of Friday's U.S. non-farm payrolls report, next week's U.S. election result, OPEC meeting at the end of the month and the anticipated interest rate hike by the U.S. Federal Reserve in December.
Today, the U.S. ADP Employment report for October showed an increase of 147,000 jobs, slightly below the consensus forecast of 165,000 jobs expected.
The decline continues for the price of oil, which broke below $46 (U.S.) a barrel, while, the price of gold continues to advance, headed towards the $1,300 (U.S.) an ounce level.
The Chicago Board Options Exchange Volatility Index, or VIX Index, often referred to as a measure of fear in the markets, is steadily climbing and is now just below 19. Generally, I take note of it once it spikes above 20. A reading above 20 can be a contrarian indicator, representing excessive fear in the markets and a buying opportunity for investors.
On the earnings front, 19 companies in the S&P/TSX composite index are scheduled to report their quarterly earnings today and among them are Brookfield Property Partners LP, Linamar, Home Capital Group, Kinross Gold, Cogeco Communications, Kinaxis, Shaw Communications, Maple Leaf Foods, Baytex Energy, Home Capital Group, Smart REIT, and Granite REIT.
Let's briefly recap what happened on Tuesday. The S&P/TSX composite index declined 9 points, or 0.06 per cent to close at 14,778. There were 108 securities in the TSX Index that advanced, 134 securities declined in value, and five stocks closed the day unchanged. Only three sectors closed in positive territory led by the health care sector with shares of Valeant Pharmaceuticals soaring 30 per cent. The remaining eight sectors closed with losses led by the consumer discretionary and industrials sectors.
The S&P/TSX composite index is down 0.06 per cent month-to-date, up 0.36 per cent quarter-to-date, and up 13.59 per cent year-to-date.
On today's TSX Breakouts report, there are 16 stocks on the positive breakouts list (stocks with positive price momentum), while the number of securities on the negative breakouts list (stocks with negative price momentum) expanded to 48.
The daily TSX Breakouts report highlights a variety of stocks such as income securities, growth stocks, small cap stocks, and speculative stocks in order to appeal to a wide range of investors. Discussed today is stock that offers investors both earnings growth and dividend growth – Hardwoods Distribution Inc. (HWD-T). The Street is forecasting a potential 33-per-cent price return over the next year, suggesting it may resurface on the positive breakouts list in the future.
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Hardwoods is a distributor of hardwood lumber and wood related products. In terms of geographical revenue breakdown, in 2015, approximately 75 per cent of the company's sales were in the U.S. with the balance in Canada. Management estimated that in 2015, 60 per cent of its products served the new residential construction market, 20 per cent went to the renovation market, and the remaining 20 per cent served the commercial construction sector. The company is a beneficiary of a rising U.S. dollar relative to the Canadian dollar.
The company has reported strong revenue growth over the years. For instance, in 2015, sales rose to $571.6-million, up 25 per cent from $455.7-million. In 2014, sales climbed 22.8 per cent to $455.7-million from $371.2-million reported in the prior year.
After the market closed on Aug. 11, the company reported solid second quarter results sending the share price up 1.7 per cent the following trading day. The company reported sales of $157-million, up 9.5 per cent year-over-year. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) came in at $11.5-million, up 24 per cent compared to the same period last year.
Housing starts data is a key statistic to monitor. As the company stated in its second-quarter Management's Discussion and Analysis (found on www.sedar.com), "For the six months ended June 30, 2016, the average seasonally adjusted rate of U.S. housing starts increased by 9.0 per cent to 1,156,000, from 1,061,000 in the same period last year. This growth bodes well for future market demand as our products are typically used 9-to-12 months after construction begins. In Canada, average seasonally adjusted housing starts increased 7.2% to 183,270 in Q2 2016 according to the Canada Housing and Mortgage Corporation."
Last month, U.S. September housing starts came in at a seasonally adjusted annual rate of 1.05-million, down 9 per cent month-over-month due to weakness in multi-family buildings. However, single-family starts were strong, up 8 per cent month-over-month. In Canada, September housing starts were robust, rising to a seasonally adjusted annual rate of 220.6-thousand units, up 19.8 per cent from 184.2-thousand units reported in August.
The company is scheduled to report its third-quarter financial results after the market closes on November 8. The Street is forecasting revenue of $260-million, EBITDA of $14.5-million, and earnings per share (EPS) of 40 cents per share.
Dividend policy
Management is committed to returning capital to its shareholders. Management has increased its dividend each year since 2012. The company's latest dividend hike was announced in August, management announced a 13.6 per cent increase to its quarterly dividend, raising it to 6.25 cents per share from 5.5 cents. This equates to a yearly dividend of 25 cents per share, and an annualized dividend yield of 1.3 per cent.
Analysts' recommendations
This small-cap stock, with a market capitalization of $398-million, is covered by three analysts on the Street. The three firms are Acumen Capital, Cormark Securities, and Mackie Research Capital. All three analysts have 'buy' recommendations on the stock.
The average one-year target price is $24.75, implying there is 33 per cent upside potential over the next 12 months. Individual target prices in numerical order are $22.75, $24, and $27.50, suggesting there is upside potential ranging from 22 per cent to 47 per cent.
The Street is forecasting steady revenue and earnings growth for this company. The consensus revenue estimate is $817-million for 2016, and forecast to rise 33 per cent, crossing above the $1-billion mark, to $1.085-billion in 2017. The consensus EBITDA estimate is $47-million for 2016 and $63-million for the following year. The Street is forecasting EPS of $1.29 in 2016 and $1.68 in 2017.
Earnings estimates have been on the rise. On July 1, the start of the second half of 2016, the consensus revenue estimate was $647-million for 2016 and $713-million for 2017. The consensus EBITDA estimate was $39-million for 2016 and $45-million for 2017, and the consensus EPS estimate was $1.29 for 2016 and $1.57 for 2017.
Chart watch
The stock remains a multi-year uptrend and appears to be consolidating. Year-to-date, the stock price is little changed, up 4 per cent.
Shares of Hardwoods have initial overhead resistance between $19 and $20, its 50-day moving average is at $18.96 and its closing high set in August was $19.72.
There is initial downside support at $18, and failing that at $17, which is near its 200-day moving average (at $17.39). There is very strong support at $15.
Liquidity for this small-cap industrials stock can be low. The historical two-month average daily trading volume is approximately 61,000 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.