Friday’s TSX breakouts: List expands to 53 stocks with positive price momentum

Investors continued their buying spree for stocks driving North American equity markets higher.

In the U.S., the Dow Jones Industrial Average increased 0.54 per cent, the S&P 500 Index climbed 0.65 per cent, and the Nasdaq composite index advanced 0.84 per cent to close at a record high.

In Canada, the S&P/TSX composite index gained 86 points, or 0.59 per cent to close at 14,797. There were 180 securities in the TSX Index that advanced, 61 securities declined in value, and five stocks closed the day unchanged.

The S&P/TSX composite index is up 1.36 per cent month-to-date, up 5.21 per cent quarter-to-date, and has a gain of 13.74 per cent year-to-date.

Given the positive market move, on today's TSX Breakouts report, there number of securities on the positive breakouts list (stocks with positive price momentum) expanded to 53 names, with representation across nine sectors. Meanwhile, there were only five securities on the negative breakouts list (stocks with negative price momentum).

Discussed today is a stock that offers investors a dividend yield of 4.75 per cent combined with 37 per cent cash flow growth forecast. On Tuesday, the company narrowly missed appearing on the negative breakouts list. However, over the past two trading sessions, the share price has rallied 6 per cent, aligned with the 6.6-per-cent climb in the price of oil. Given the price of oil appears to be locked in the low to high $40 range, this stock may require some patience from investors. The security highlighted today Bonterra Energy Corp. (BNE-T)

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

The company

Calgary-based Bonterra is an oil-weighted company with operations located in western Canada: Alberta, Saskatchewan, and northeast British Columbia. The company has over 200 net sections of land with a drilling inventory of over 20 years.

On Aug. 10, the company reported better-than-expected second quarter financial results. Adjusted cash flow per share came in at 64 cents, above the consensus estimate of 61 cents. Production averaged 12,584 barrels of oil equivalent per day (boe/d). For 2016, management has guided to production of 12,500 boe/d. Management remains focused on reducing its debt. As of June 30, the company's net debt to trailing cash flow ratio was 4 times.

According to the company's August investor presentation, insider ownership stood at 12 per cent.

Dividend policy

In the recent Management's Discussion and Analysis, the company stated, "With its large inventory of undrilled locations, Bonterra continues to be well positioned to provide its shareholders a combination of sustainable growth and meaningful dividend income."

The company pays its shareholders a monthly dividend of 10 cent per share, or $1.20 on a yearly basis. This equates to an annualized dividend yield of 4.7 per cent.

The dividend appears sustainable now given management has announced two dividend cuts since the beginning of 2015. Last December, management announced the monthly dividend would be trimmed to 10 cents per share from 15 cents per share previously, and in January 2015, the company slashed its dividend in half, to 15 cents per share from 30 cents. The cash flow payout ratio was 81 per cent during the first half of the year.

Valuation

Many analysts value the stock on an enterprise value-to-debt adjusted cash flow basis.

The average one-year target price is $29.48, which implies nearly 17 per cent upside potential over the next 12 months. Target prices range from a low of $25 to a high of $35. The lowest target price on the Street suggests the stock price is fully valued. In other words, according to analyst target prices, the downside risk may be limited but the upside potential is attractive. Individual target prices provided by 14 firms are as follows in numerical order: $25, $27, $28, $28.50, $28.75, $29, four at $30, two at $32, $33, and $35.

Analysts' recommendations

According to Bloomberg, there are nine analysts with 'buy' recommendations, four analysts with a 'hold' recommendations, and two analysts with 'sell' recommendations.

The consensus cash flow per share estimate is $2.81 in 2016, and is expected grow over 36 per cent to $3.84 in 2017.

In recent months, analysts have been revising their forecasts higher. At the beginning of March, the consensus cash flow per share estimate was $2.64 for 2016 and $3.01 for 2017.

Chart watch

Bonterra is amongst the top performing stocks in the energy sector of the S&P/TSX composite index year-to-date with a price return of 47 per cent, as the share price accompanied the rising price of oil. Much of these gains were realized in the first four months of the year, and since then, the share price has been consolidating, trading sideways, largely between $24 and $28, just as the price of oil has been consolidating.

There is initial overhead resistance between $29 and $30, and after that, there is upside resistance at $35.

There is initial downside support around $23.50, then at $22, which is near its 200-day moving average (at $22.27). Failing that, there is support at $20.

The relative strength index is at 51, suggesting the share price is in neutral territory, neither overbought nor oversold. Generally, a reading at or above 70 indicates an overbought condition, and a reading at or below 30 indicates an oversold condition.

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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 indices 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.