Markets continue to remain under pressure. The price of oil is falling once again.
A key economic report released today was the U.S. non-farm payroll report. The report showed an increase of 161,000 jobs in October, slightly below expectations. According to Bloomberg, the Street was forecasting an increase of 173,000 jobs in October.
In terms of earnings releases, three companies in the S&P/TSX composite index are scheduled to report before the market opens today - TransAlta, Telus, and Fortis.
Let's briefly recap what happened on Thursday. The S&P/TSX composite index fell 11 points, or 0.08 per cent to close at 14,583. There were 116 securities in the TSX Index that advanced, 128 securities declined in value, and three stocks closed the day unchanged. Only three of the 11 sectors in the TSX Index closed in positive territory led by strength in the materials sector, driven higher by gold stocks.
The S&P/TSX composite index is down 1.38 per cent month to date, down 0.97 per cent quarter to date, and up 12.09 per cent year-to-date.
On today's TSX Breakouts report, there are just 6 stocks on the positive breakouts list (stocks with positive price momentum), while the number of securities on the negative breakouts list (stocks with negative price momentum) is up to 83.
The growing number of stocks on the negative breakouts list can be used to represent a list of potential future buying opportunities. While some stocks on the list reflect earnings shortfalls and deteriorating fundamentals, the weakness for other securities is a reflection of negative investor sentiment with strong company fundamentals remaining intact.
U.S. election concerns continue to grip investors. The cautious investor sentiment is evidenced by the rising Chicago Board Option Exchange SPX Volatility Index, or VIX Index, which climbed to a reading of 22 on Thursday. When the Index breaks above 20, it can represent excessive fear in the markets and a buying opportunity for investors. Ahead of the U.S. Presidential election results, the VIX index may continue to climb higher, and stocks may continue to fall in value, creating more potential future buying opportunities. As a result, the negative breakouts list is becoming increasingly interesting as strong companies continuing to see their valuations contract.
Discussed today is a security that appears on the negative breakouts list. The downtrend appears intact for now, and as such, it may be premature to consider purchasing units. However, as the unit price continues to slide, the valuation is becoming more interesting and investors may want to do further research on this security - Killam Apartment Real Estate Investment Trust (KMP.UN-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The REIT
Halifax-based Killam, operates a portfolio of multi-family apartments and manufactured home communities. The company has operations in Alberta, Ontario, New Brunswick, Newfoundland, Nova Scotia, and Prince Edward Island.
Killam reported its third-quarter financial results after the market closed on Nov. 1. Killam reported funds from operations per unit of 24 cents, unchanged from the same period last year. This was relatively in-line with analysts' expectations, which were either at 24 cents or 25 cents. Adjusted funds from operations (AFFO) per unit came in at 21 cents, in-line with the consensus estimate. Same-property net operating income increased 3 per cent year-over-year. Same-property occupancy was 95.8 per cent, up from 95.1 per cent in the previous year.
Distribution policy
The REIT pays its unitholders a monthly distribution of 5 cents per share, or 60 cents on a yearly basis. This equates to an annualized yield of 5.2 per cent. Management has held the distribution at this level since early 2014.
The AFFO payout ratio was 81 per cent as of the end of September. The board has not set a formal payout ratio.
Valuation
According to Bloomberg, the REIT is trading at a price-to-FFO (P/FFO) multiple of 12.7 times the 2017 consensus estimate, near its three-year historical average multiple of 12.9 times.
During the past three years, the REIT has traded at a multiple ranging from a low of roughly 11.5 times and just over 14.5 times. Looking at the downside risk, should units of Killam trade down to a forward P/FFO multiple of 12 times the 2017 consensus estimate, this would take the unit price down to just under $11.
Analysts' recommendations
This small-cap REIT, with a market capitalization of $769-million, is covered by 11 analysts. Firms providing analyst coverage are: BMO Capital Markets, Canaccord Genuity, CIBC World Markets, Dundee Securities, GMP, Industrial Alliance Securities, National Bank Financial, Raymond James, Scotia Capital, RBC Capital Markets, and TD Securities. There are ten 'buy' recommendations and one 'hold' recommendation.
The average one-year target price is $13.86, implying there is 20 per cent upside potential in the unit price over the next 12 months.
The Street is forecasting FFO per unit of 86 cents in 2016, rising to 91 cents in 2017. The AFFO per unit consensus estimate is 76 cents in 2016 and 80 cents in 2017.
Forecasts have been relatively steady, rising slightly. For instance, at the start of the year, the FFO per unit estimates were 84 cents for 2016 and 88 cents for 2017. The AFFO per unit forecasts were 73 cents for 2016 and 76 cents for 2017.
Chart watch
Year to date, the unit price is up 10 per cent. However, the unit price has been under pressure in recent months, falling nearly 12 per cent since the beginning of August, and declining 6 per cent over the past seven trading sessions.
The downtrend remains intact with the units looking to exhibit a bearish technical "death cross" formation. This occurs when the 50-day moving average crosses below the 200-day moving average. The 50-day moving average is currently at $12.16 and the 200-day moving average is at $12.03.
There is initial downside support around $11.
The relative strength index is at 34, suggesting the shares are approaching, but not quite at oversold territory. Generally, a reading at or below 30 indicates an oversold condition.
There initial overhead resistance around $12, close to its 50-day and 200-day moving averages. There is significant resistance at $13.25.
The small cap REIT has reasonable liquidity. The two-month historical daily average trading volume is approximately 370,000 units.
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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 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.