It was a painful day for investors in equity markets on Friday with the S&P/TSX composite index dropping 240 points or 1.69 per cent. There were 53 stocks in the Index that advanced, 183 stocks declined, and four securities were unchanged. Gold stocks were the top performers for the day.
Many defensive, dividend paying securities also stood their ground and held up amongst the selling pressure. Dividend stocks remain attractive to investors given the low interest rate environment. Fed fund futures are now pricing in a zero per cent probability of a rate hike on July 27 and September 21, just a 2 per cent probability of an increase in November, and only a 15 per cent probability of a bump in rates by the U.S. Federal Reserve in December.
Friday was not one of the worst trading days this year on the TSX. In fact, over the past 12 months, there have been 16 trading days with lower performance. Over the past year, the worst day was Aug. 24, 2015, when the index plunged 3.1 per cent and over 318 million shares traded. On Friday, while there was strong selling pressure, volumes were elevated but the market selloff did not appear to be panic selling, with just over 278 million shares traded. That being said, there will likely be more damage in equity markets today, albeit less than Friday, with Brexit concerns still at the forefront of investors' minds. Major European markets, the London FTSE, the German DAX, and the French CAC are all down, approximately 2 per cent. Buyers are remaining on the sidelines, waiting for equity markets to stabilize.
On today's Breakouts Report, there are 23 securities on the positive breakouts list (stocks with positive price momentum), which includes 17 gold stocks and one silver stock. Meanwhile, the list of securities on the negative breakouts list (stocks with negative price momentum) has expanded to 41 stocks, which remains well below the 99 securities that appeared on the negative breakouts list during last year's market meltdown on Aug. 24. Given the still relatively moderate number of stocks on the negative breakouts list, I expect it to grow.
Gold stocks have delivered stellar returns in 2016, and as a result, many analysts see limited further near-term upside potential given that valuations for many of these stocks appear fair or high. In fact, taking some profits off the table may be prudent given the parabolic moves we have seen in these stocks.
Discussed today is a gold stock has two distinguishing features relative to its peers. First, many analysts actually believe the stock is not fully valued and forecast further upside. Second, only 10 of the 25 gold stocks in the S&P/TSX composite index pay shareholders a dividend, and this stock is one of them. The stock I am referring to is Tahoe Resources Inc. (THO-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
Tahoe Resources operates gold mines in Canada and Peru, and a silver mine in Guatemala.
The stock is dual listed, trading on both the Toronto Stock Exchange as well as the New York Stock Exchange under the tickers, THO and TAHO, respectively.
On May 3, the company reported first quarter financial results that beat the Street's expectations. Adjusted earnings per share came in at 16 cents per share (U.S.), above the consensus estimate of 8 cents per share. Tahoe has a strong balance sheet. Including the recent Lake Shore Gold Corp. acquisition, the company's net cash position was $97-million as of April 1.
Management's guidance for 2016 is for gold production of between 370,000 and 430,000 ounces at total cash costs of between $675 and $725 per ounce, and silver production of between 18 million and 21 million ounces at total cash costs of between $7.50 and $8.50 per ounce. The company is targeting gold production to expand to over 550,000 ounces per year by the year 2020.
The company pays shareholders a monthly dividend of 2 cents per share (U.S) or 24 cents on a yearly basis. This equates to an annualized yield of 1.7 per cent. The company has maintained its dividend at this level since 2014.
According to Bloomberg, the stock is trading at a price-to-cash flow multiple of 11.5 times the fiscal 2017 consensus estimate, slightly above its three-year historical average of 11.1 times.
Many analysts value the stock on a price-to-net asset value basis or on a price-to-cash flow basis. According to Bloomberg, the one-year price target is $19.74, which is based on 13 buy recommendations and two hold recommendations. This suggests the share price may appreciate 9.5 per cent over the next 12 months.
The consensus EBITDA forecast is $342-million (U.S.) in 2016, climbing 19 per cent to $408-million in 2017. The consensus earnings per share estimate is 57 cents in 2016, increasing 14 per cent to 65 cents in 2017. The Street's cash flow per share forecast is $1.03 in 2016, rising over16 per cent to $1.20 in 2017.
The stock price can be quite volatile given the large swings in the price of gold. For instance, on May 2, the price of gold closed at $1,296 (U.S.) an ounce and fell over 6 per cent to $1,213 one month later, on June 2. The share price of Tahoe, declined over 10 per cent during this period.
Year-to-date, the stock has been a laggard relative to other gold stocks in the S&P/TSX composite index, but still rising a stellar 50 per cent.
There is large overhead resistance at $20. The stock has downside support around $17, near its 50-day moving average (at $16.61). Failing that, there is support at $15, and then around $13, which is close to its 200-day moving average (at $13.09).
The relative strength index is at 62, suggesting the shares are in neutral territory, not overbought. Generally, a reading at or above 70 indicates an overbought condition.
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.
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 securities principally from 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. Securities on the positive breakouts list have displayed positive price momentum during this period. Securities on negative breakouts list have experienced negative price momentum.
|AEM-T||Agnico Eagle Mines Ltd|
|AR-T||Argonaut Gold Inc|
|AKG-T||Asanko Gold Inc|
|ABX-T||Barrick Gold Corp|
|BPF-U-T||Boston Pizza Royalties Income Fund|
|CAR-U-T||Canadian Apartment Properties REIT|
|CNL-T||Continental Gold Inc|
|DGC-T||Detour Gold Corp|
|FR-T||First Majestic Silver Corp|
|GUY-T||Guyana Goldfields Inc|
|H-T||Hydro One Ltd.|
|NVU-U-T||Northview Apartment REIT|
|PVG-T||Pretium Resources Inc|
|SSL-T||Sandstorm Gold Ltd|
|SSO-T||Silver Standard Resources Inc|
|THO-T||Tahoe Resources Inc|
|AGT-T||AGT Food & Ingredients Inc|
|ATA-T||ATS Automation Tooling Systems Inc|
|BLD-T||Ballard Power Systems Inc|
|BTB-U-T||BTB Real Estate Investment Trust|
|CNR-T||Canadian National Railway Co|
|CWB-T||Canadian Western Bank|
|GIB/A-T||CGI Group Inc|
|CHW-T||Chesswood Group Ltd|
|CHR-T||Chorus Aviation Inc|
|CPH-T||Cipher Pharmaceuticals Inc|
|CUF-U-T||Cominar Real Estate Investment Trust|
|CXR-T||Concordia Healthcare Corp|
|EFN-T||Element Financial Corp|
|GEI-T||Gibson Energy Inc|
|GIL-T||Gildan Activewear Inc|
|GWO-T||Great-West Lifeco Inc|
|HGN-T||Halogen Software Inc|
|HCG-T||Home Capital Group Inc|
|IMO-T||Imperial Oil Ltd|
|KPT-T||KP Tissue Inc|
|L-T||Loblaw Cos Ltd|
|MG-T||Magna International Inc|
|MRE-T||Martinrea International Inc|
|MSL-T||Merus Labs International Inc|
|NSU-T||Nevsun Resources Ltd|
|NIF-U-T||Noranda Income Fund|
|PSG-T||Performance Sports Group Ltd|
|POW-T||Power Corp of Canada|
|PWF-T||Power Financial Corp|
|SUM-T||Solium Capital Inc|
|VRX-T||Valeant Pharmaceuticals International|
|WFT-T||West Fraser Timber Co Ltd|
|WPT-T||Westport Innovations Inc|
|Y-T||Yellow Pages Ltd|