The recent positive momentum in North American equity markets may be due for a pause. North American equity markets look to open lower. Major European stock markets are trading down.
In terms of commodities on the move today, the price of gold is on the rise along with the price of natural gas futures contracts.
Fourth-quarter bank earnings season kicks off this week with the Bank of Nova Scotia reporting on Tuesday before the market opens. On Wednesday, Royal Bank reports its financial results. The following day, Canadian Western Bank, CIBC, and TD Bank report their year-end results, and rounding out the week is National Bank, reporting before the market opens on Friday.
In terms of economic releases, Canadian September gross domestic product (GDP) figures are released on Wednesday, and a key U.S. economic report, U.S. nonfarm payrolls data for November, will be announced on Friday.
Briefly recapping Friday's performance, all three U.S. major markets, the Dow Jones Industrial Average, the S&P 500 Index, and the Nasdaq composite index, rallied between 0.34 per cent and 0.39 per cent. In Canada, the S&P/TSX composite index was unchanged. There were 102 securities in the TSX Index that advanced, 134 securities declined in value, and 11 stocks closed the day unchanged. In terms of sectors, nine of the 11 sectors closed in positive territory led by strength in the utilities sector. The two laggards were the energy and health care sectors, each falling by more than 1 per cent.
The S&P/TSX composite index is up 1.95 per cent month-to-date, up 2.37 per cent quarter-to-date, and has a year-to-date gain of 15.88 per cent.
On today's TSX Breakouts report, there are 35 stocks on the positive breakouts list (stocks with positive price momentum), and 17 securities on the negative breakouts list (stocks with negative price momentum), the majority of which are gold and silver related stocks.
Discussed today is a stock that appears on the negative breakouts list with its share price falling 13 per cent over the past month. Analysts believe the current price weakness may represent a buying opportunity for investors. The security highlighted is Raging River Exploration Inc. (RRX-T). Be mindful that the price of oil, and energy stocks, may be volatile this week due to Wednesday's OPEC meeting , the conference of the Organization of the Petroleum Exporting Countries being held in Vienna, Austria.
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Calgary-based Raging River Exploration is a junior oil and gas producer, weighted towards oil, with operations focused in Saskatchewan. The company has an experienced management team. Insider ownership is approximately 12.5 per cent.
After the market closed on November 8, the company reported its third-quarter financial results. The U.S. post-election rally the following day, helped lift the share price up 3.3 per cent. The company realized average production of 18,612 barrels of oil per day (boe/d), 93 per cent oil, in-line with the consensus estimate of 18,673 boe/d, and up 39 per cent from 13,418 boe/d compared to the same period last year. Cash flow per share came in at 22 cents, a penny above the Street's expectations.
According to the company's corporate presentation posted on their website, management is forecasting production of 22,000 boe/d in 2017, rising to 24,700 boe/d in 2018. In addition, cash flow per share is forecast to reach $1.12 in 2017 and $1.35 the following year.
The company is expected to provide formal guidance for 2017 in a few weeks, in mid-December.
Dividend policy
The company is focused on growth and does not pay shareholders a dividend.
Valuation
According to Bloomberg, the shares are trading at a price-to-cash flow multiple of 8.1 times the 2017 consensus estimate, above its three-year historical average of 7.3 times, but below its peak of over 10 times during this period.
Analysts' recommendations
There are 16 analysts whom have issued research reports over the past two months, 14 have 'buy' recommendations and two have 'hold' recommendations.
The average one-year target price is $13.10, implying the share price may appreciate 32 per cent over the next 12 months. Target prices range from a low of $12 to a high of $14. Individual target prices in numerical order are as follows: two at $12, $12.75, eight at $13, $13.25, $13.50, and three at $14.
The Street is forecasting attractive growth for the company with total production forecast to rise to 21,990 boe/d in 2017. The consensus cash flow per share estimate is 80 cents in 2016, climbing over 52 per cent to $1.22 in 2017.
Cash flow forecasts have been revised up and down. For instance, at the beginning of the year, the consensus cash flow per share estimates were $1.03 for this year and $1.35 next year. A few months later, cash flow forecasts bottomed before recovering. On April 4, the consensus cash flow per share estimates were 69 cents for 2016 and 97 cents for 2017.
Chart watch
The shares have somewhat of a limited trading history as they began publicly trading in March 2012.
Year to date, the stock price is up over 18 per cent, but over the past month, the share price has slipped 13 per cent. In fact, looking back over the past month, the stock is the worst performer in the S&P/TSX composite index energy sector. The share price has broken below both its 50-day and 200-day moving average, which is negative.
Over the past six months, the share price has traded between $10 and $12. There is initial downside support around its current price level, near the $10 mark. Should the share price fail to hold here, the next support level is around $9.
The relative strength index is at 38, suggesting the shares are not quite in oversold territory. Generally, a reading of 30 or below indicates an oversold condition.
On a recovery, the share price has major overhead resistance just below $12. The stock price has peaked over $11 on several occasions, in 2014 and 2016, but has failed to break above $12.
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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.