Wednesday’s TSX breakouts: A stock with 13 buy calls enters the electric vehicle market

On today’s TSX Breakouts report, there are 35 stocks on the positive breakouts list (stocks with positive price momentum), and 31 securities are on the negative breakouts list (stocks with negative price momentum).

Discussed today is a stock that is on the positive breakouts list. There are a number of gold and silver stocks that are gaining positive price momentum fuelled by trade war fears. This stock provides investors with leverage to rising commodity prices and also offers investors a dividend yield of 1.6 per cent. Since releasing its first-quarter earnings results, 13 analysts have issued buy recommendations on the stock.

The security highlighted today is Wheaton Precious Metals Corp. (WPM-T).

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

The company

Wheaton Precious Metals is a streaming company. As such, it purchases the right to receive silver and gold production from companies without having to incur exploration or production costs. The company currently receives income from gold and silver streaming agreements.

On June 11, the company announced its first cobalt streaming agreement. Effective January 1, 2021, the company will be entitled to receive 42.4 per cent of cobalt production from Vale’s Voisey’s Bay mine until 31-million pounds is delivered, after which Wheaton will receive 21.2 per cent of production. Wheaton paid U.S. $390-million to Vale in order to secure this arrangement. Cobalt is a key component in electric vehicles.

On a conference call held the following day, chief executive officer Randy Smallwood stated, “Wheaton has and always will be a precious metals-focused company. However, we welcome the opportunity to invest into another low-cost, long life asset with the partner of Vale’s caliber. While cobalt isn’t considered a precious metal, we think it is far from being just a base metal. Through Voisey’s Bay, we not only get exposure to the rapidly growing demand for cobalt, we also get this exposure from what we believe to be the cleanest, most politically stable source of the metal in this world. Furthermore, we are very excited about the contributions our new cobalt stream makes to both Wheaton’s growth profile and cash flow.“

He added, “Wheaton’s attributable cobalt production is forecast to average 2.6 million pounds per year for the first 10 years, which for context is approximately 80,000 gold-equivalent ounces per year at current spot prices and at the current cobalt price, that production results in additional operating cash flow to Wheaton, forecast to average over U.S. $75-million per year for the first 10 years. Along with strong cash flow and production, Voisey’s Bay diversifies Wheaton’s portfolio with an integral metal for clean energy as cobalt is primarily used in battery technology, especially in the rapidly expanding electric vehicle market. While most cobalt supply comes from high political risk jurisdictions, Voisey’s Bay is located in Newfoundland and Labrador in Canada.”

The stock is dual-listed trading on both the Toronto Stock Exchange and the New York Stock Exchange under the same ticker, WPM.

Dividend policy

The company pays its shareholders a quarterly dividend of U.S. 9 cents per share or U.S. 36 cents per share yearly. This equates to an annualized dividend yield of 1.6 per cent.

Analysts’ recommendations

After the company released its first-quarter financial results in May, 13 analysts published recommendations on the stock – all buy recommendations.

The 13 firms are as follows in alphabetical order: BMO Capital Markets, Canaccord Genuity, CIBC Capital Markets, Credit Suisse, Desjardins Securities, Eight Capital, GMP Securities, Macquarie, National Bank Financial, Raymond James, RBC Capital Markets, Scotia Capital, and TD Securities.

Revised recommendations

In June, Carey MacRury, the analyst from Canaccord Genuity, lifted his target price to $40.50 from $38.50. Brian MacArthur from Raymond James hiked his target price to U.S. $26 from U.S. $25.

Financial forecasts

The Street is anticipating earnings per share of U.S. 60 cents in 2018 and U.S. 73 cents the following year. The consensus cash flow per share estimates are U.S. $1.10 in 2018 and U.S. $1.33 in 2019.

Earnings expectations, for the most part, have been relatively stable. To illustrate, three months ago, the consensus earnings per share estimates were U.S. 60 cents for 2018 and U.S. 75 cents for 2019. The consensus cash flow per share estimates were U.S $1.23 for 2018 and U.S. $1.34 for 2019.

Valuation

Analysts commonly value the stock on a price-to-net asset value and price-to-cash flow basis. According to Bloomberg, the stock is currently trading at a price-to-cash flow multiple of 16.9 times the 2019 consensus estimate.

Insider Transaction Activity

On May 23, director George Brack sold 4,500 shares at a price per share of $28.19, reducing his portfolio’s position to 17,522 shares.

On March 28, director John Brough exercised his rights and sold the corresponding number of shares (1,500) at a price per share of $25.85, eliminating his portfolio position.

Chart watch

On Tuesday, the share price jumped 1.6 per cent on high volume with over 3.4-million shares traded, well above its three-month historical daily average trading volume of approximately 1.1-million shares.

Since the beginning of 2017, the share price has fluctuated principally between $25 and $30, and is currently at the upper end of this trading band.

Looking at key resistance and support levels, the share price is approaching a major resistance level around $30. If the share price can break above this level, the next area of resistance is around $35. Looking at the downside, there is strong technical support level around $25, and failing that, around $20.

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.