On today's TSX Breakouts report, there are 53 stocks on the positive breakouts list (stocks with positive price momentum), and 36 securities on the negative breakouts list (stocks with negative price momentum).
I like to feature a variety of securities to appeal to a wide range of investors.
Discussed today is a value stock that may appear on the positive price breakouts list later this year. Its industry peers are off to a strong start in 2018 with many realizing double-digit gains year-to-date. As the multiple spread widens between this stock's valuation compared to its peers, its share price may rise.
This company is a "show me" story yet to prove itself; however, all five analysts covering the stock have buy recommendations. The security highlighted today is Stelco Holdings Inc. (STLC-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
Hamilton-based Stelco emerged from creditor protection and completed an initial public offering in November. With two plants in Ontario, Stelco is the country's leading integrated steel company manufacturing hot-rolled, cold-rolled, and coated sheet steel products serving the construction, auto, and energy markets across North America.
In the company's prospectus, management outlined its main objectives as, "Optimizing production from our assets, maintaining our strong balance sheet, maximizing profitability and cash flows, and growing our business."
Management anticipates, "That by the end of fiscal year 2022 an opportunity exists for us to grow our annual shipments to between 3.0 and 3.2 mnt (million net tons). While this growth may be non-linear over the five year period, we believe we can achieve this growth organically by optimizing utilization of our assets and focusing our production and sales efforts on high-margin products and end markets that we consider having the greatest potential for profitability and growth. Historically, approximately one-third of sales by volume were made to the automotive market and approximately one-third of our sales by volume were coated and cold-rolled products. We are actively seeking to re-establish relationships with these customers and regain coated and cold-rolled volumes. Additionally, we are seeking to expand our product offering by investing in research and development and enhancing our technical capabilities in order to produce advanced steels. We are also seeking to re-start our temper line and install annealing furnaces to allow for the production of cold-rolled, fully-processed products, which we believe will enhance our profitability."
Management noted that, "Our operations currently have substantial excess capacity and we believe this excess capacity is accessible with limited capital investment."
Management is focused on production growth, realizing operational efficiencies, and improving profitability. As a result, the company currently does not pay its shareholders a dividend. However, the board of directors may decide to initiate a dividend in the future.
The stock is covered by five analysts, of which all five analysts have buy recommendations.
The stock, with a market capitalization just under $2-billion, is covered by the following firms listed in alphabetical order: BMO Capital Markets, Credit Suisse, Goldman Sachs, J.P. Morgan, and Oppenheimer & Co.
National Bank Financial, Scotia Capital, and TD Securities were underwriters in the initial public offering. Consequently, it would not surprise me if analysts from any of these firms launched coverage on the company in the future.
While the stock has only traded on the Toronto Stock Exchange for two months, two analysts have already revised their target prices.
In December, David Gagliano, the analyst from BMO Capital Markets, increased his target price to $25 from $23. Ian Zaffino from Oppenheimer lifted his target price higher to $25 from $24.
The Street is forecasting EBITDA (earnings before interest, taxes, depreciation and amortization) of $195-million in 2017, jumping to $310-million in 2018 and rising to $337-million in 2019. In 2018, the company is expected to be profitable with the consensus earnings per share estimates for 2018 and 2019 at $2.62 and $3.16, respectively.
According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 5.8 times the 2019 consensus estimate.
Its steel producer peers are trading at higher valuations suggesting there is room for Stelco's valuation to expand. For instance, AK Steel Holding Corp. (AKS – NYSE) is trading at an EV/EBITDA multiple of 8.1 times. Nucor Corp. (NUE- NYSE) is trading at an EV/EBITDA multiple of 7.8 times and Steel Dynamics Inc. (STLD-Nasdaq) is trading at an EV/EBITDA multiple of 7.8 times.
The consensus 12-month target price is $24.25, implying the share price has approximately 9 per cent upside potential over the next year. Individual target prices are as follows in numerical order: $23, $24, and three at $25.
Insider transaction activity
There has not been any buying or selling activity in the public markets reported by insiders since the stock began trading on the Toronto Stock Exchange.
The stock began trading on the Toronto Stock Exchange on Nov. 3. That day, the share price soared to close at $19.20, rising 13 per cent from its initial public offering price of $17.
The stock has a very limited trading history. As a result, technical analysis is constrained. However, its steel producer peers are rallying. Year-to-date, shares of AK Steel Holding Corp. (AKS – NYSE) are up nearly 14 per cent, shares of Nucor Corp. (NUE- NYSE) are up over 10 per cent and shares of Steel Dynamics Inc. (STLD-Nasdaq) have jumped 9 per cent. However, shares of Stelco Holdings are down 2.5 per cent. For the past months, the share price has been trading sideways, principally between $22 and $23.
Daily trading volumes can vary widely. For instance, on Dec. 1, 97,000 shares traded but a few days later, on Dec. 6, over 587,000 shares traded. This week, on Jan. 11 nearly 164,000 shares traded; however, the prior day approximately 65,000 shares traded.
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, financial forecasts, 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.
|Positive Breakouts||Jan. 11 close|
|AOI-T||Africa Oil Corp||$1.69|
|AFN-T||Ag Growth International Inc||$58.10|
|AI-T||Atrium Mortgage Investment Corp.||$12.62|
|ATA-T||ATS Automation Tooling Systems Inc||$16.40|
|GBT-T||BMTC Group Inc||$18.45|
|BYD.UN-T||Boyd Group Income Fund||$105.12|
|CFW-T||Calfrac Well Services Ltd||$6.75|
|CTC.A-T||Canadian Tire Corp Ltd||$170.26|
|CGG-T||China Gold International Resources Corp.||$2.42|
|CNL-T||Continental Gold Inc||$3.78|
|CPG-T||Crescent Point Energy Corp||$11.38|
|DIV-T||Diversified Royalty Corp||$3.68|
|DIR.UN-T||Dream Industrial REIT||$9.27|
|DPM-T||Dundee Precious Metals Inc||$3.15|
|ESI-T||Ensign Energy Services Inc||$7.64|
|FTT-T||Finning International Inc||$33.01|
|FM-T||First Quantum Minerals Ltd||$19.46|
|GPR-T||Great Panther Silver Ltd||$1.75|
|GCG.A-T||Guardian Capital Group Ltd||$26.79|
|HBM-T||HudBay Minerals Inc||$12.20|
|IBG-T||IBI Group Inc.||$8.93|
|KEL-T||Kelt Exploration Ltd||$7.47|
|LIF-T||Labrador Iron Ore Royalty Corp||$28.39|
|TPX.B-T||Molson Coors Canada Inc.||$113.71|
|NEPT-T||Neptune Technologies & Bioressources Inc||$4.09|
|NFI-T||New Flyer Industries Inc||$56.58|
|PD-T||Precision Drilling Corp||$4.49|
|RRX-T||Raging River Exploration Inc||$8.56|
|RKN-T||Redknee Solutions Inc||$1.10|
|RFP-T||Resolute Forest Products Inc.||$14.53|
|RPI.UN-T||Richards Packaging Income Fund||$32.32|
|RBA-T||Ritchie Bros Auctioneers Inc||$39.84|
|RY-T||Royal Bank of Canada||$105.08|
|SES-T||Secure Energy Services Inc||$9.48|
|SOX-T||Stuart Olson Inc||$7.90|
|TECK.B-T||Teck Resources Ltd||$37.90|
|TGZ-T||Teranga Gold Corp||$3.18|
|TV-T||Trevali Mining Corp||$1.56|
|TMQ-T||Trilogy Metals Inc.||$1.98|
|TDG-T||Trinidad Drilling Ltd||$1.90|
|VRX-T||Valeant Pharmaceuticals International Inc||$29.81|
|XDC-T||Xtreme Drilling Corp||$2.37|
|YRI-T||Yamana Gold Inc||$4.19|
|AGI-T||Alamos Gold Inc||$7.39|
|AQN-T||Algonquin Power & Utilities Corp||$13.25|
|BIR-T||Birchcliff Energy Ltd||$3.67|
|BPY.UN-T||Brookfield Property Partners LP||$26.58|
|CU-T||Canadian Utilities Ltd||$36.30|
|CHE.UN-T||Chemtrade Logistics Income Fund||$18.42|
|CCA-T||Cogeco Communications Inc||$82.54|
|CJR.B-T||Corus Entertainment Inc||$9.08|
|CR-T||Crew Energy Inc||$2.64|
|WN-T||George Weston Ltd||$107.26|
|GWR-T||Global Water Resources Inc.||$11.20|
|H-T||Hydro One Ltd.||$21.70|
|IGM-T||IGM Financial Inc||$43.48|
|IFC-T||Intact Financial Corp||$102.33|
|LB-T||Laurentian Bank of Canada||$54.53|
|NWC-T||North West Co Inc||$28.97|
|NDM-T||Northern Dynasty Minerals Ltd.||$2.09|
|NPI-T||Northland Power Inc||$22.92|
|PTG-T||Pivot Technology Solutions Inc.||$2.03|
|QSR-T||Restaurant Brands International Inc||$76.64|
|REI.UN-T||RioCan Real Estate Investment Trust||$23.89|
|RCI.B-T||Rogers Communications Inc||$62.35|
|SJR.B-T||Shaw Communications Inc||$27.15|
|TRI-T||Thomson Reuters Corp||$54.22|
|TCN-T||Tricon Capital Group Inc||$10.58|
|WJA-T||WestJet Airlines Ltd||$24.66|