Monday's TSX breakouts: This stock's strong growth forecast supports 7 'buy' recommendations

North American stock markets ended on a positive note last Friday.

The S&P/TSX composite index gained 35 points, or 0.2 per cent to 14,601 on low volume. Within the Index, there were 135 stocks that advanced, 103 securities declined, and two stocks were unchanged. In the U.S., the Dow Jones Industrial Average, S&P 500 index, and Nasdaq composite all rallied between 0.3 per cent and 0.5 per cent.

Month to date, the S&P/TSX Composite Index is up 3.8 per cent with gains across all ten sectors. Year to date, the Index is up 12.23 per cent.

On today's Breakouts Report, there are 52 securities on the positive breakouts list (stocks with positive price momentum) and four stocks on the negative breakouts list (stocks with negative price momentum).

Discussed today is a stock from the positive breakouts list that has solid growth forecast for this year and next year. The stock has seven buy recommendations, and an average price return anticipated of 15 per cent over the next year. While the stock price has experienced a stellar rally over the past few weeks, the share price could come under pressure in the months ahead, and if so, that could be a buying opportunity. The security I am referring to is Interfor Corporation (IFP-T).

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

The company

Interfor Corp. is the fourth-largest North American lumber producer with significant U.S. exposure. The U.S. housing market is a key driver for Interfor as the U.S. represents 73 per cent of the company's lumber sales.  On July 19, U.S. June building permit data was positive, rising 1.5 per cent month over month to 1.15-million, which bodes well for the company.

An overhang for the group is the softwood lumber agreement which expired last year. If a new agreement is not reached, shares of Interfor may have greater downside protection, relative to its Canadian peers, given its large U.S. production, particularly in the U.S. southern states where the company has nine mills.

Dividend policy

The company does not pay shareholders a dividend. For investors seeking income in this space, Western Forest Products, Norbord, and Stella-Jones, all offer investors dividend income.

Valuation

According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 6.1 times the 2017 consensus estimate, which is above the three-year historical average multiple of 5.4 times.

Analysts' recommendations

According to Bloomberg, the one-year price target is $15.78, which implies a potential price return of nearly 15 per cent over the next 12 months. Since the beginning of 2016, eight firms have provided target price that range from a low of $14 to a high of $17. Individual target prices are as follows: $14, $15, $15.75, three at $16, $16.50, and $17.

The Street is forecasting EBITDA of $170-million in 2016, rising 35 per cent to $229-million in 2017.

Chart watch

Stocks in the forest products sub-industry of the S&P/TSX composite index have been under pressure so far this year. Year to date, for instance, shares of Canfor (CFP-T), West Fraser Timber (WFT-T), and Western Forest Products (WEF-T) are down 24 per cent, 17 per cent, and 5 per cent, respectively. However, two securities within this sub-sector have outperformed the group, Norbord (OSB-T) and Interfor, both of which appear on the positive breakouts list.

These two securities have the strongest year-to-date returns in the group with shares of Norbord up 15 per cent, while shares of Interfor are relatively unchanged, down 2 per cent.  Much of this outperformance has been realized month to date. Shares of Norbord and Interfor are up 23 per cent and 24 per cent, respectively, so far this month.

Interfor's stock price is steadily approaching a major overhead resistance level around $14.50. At the end of March, the stock price peaked at $14.37 and in late December 2015, the share price climbed to $14.54, neither time was the positive price momentum sustainable with the share price failing to climb above this $14.50 ceiling for a significant period of time.

The relative strength index is at 70, suggesting the share are in overbought territory. Generally, a reading at or above 70 indicates an overbought condition.

There is downside support around $12, which is near the stock's 50-day moving average (at $12.07) and its 200-day moving average (at $12.08), and failing that around $10.

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.