Monday’s TSX breakouts: Fertilizer stock sprouts up with its 3.5% dividend

There are just 15 stocks on the positive breakouts list, and 47 stocks on the negative breakouts list. While the negative breakouts list is expanding, there are some encouraging signs that suggest investors should not panic. First, the valuation for the S&P/TSX composite index is relatively inexpensive. The TSX index is trading at a price-to-earnings (p/e) multiple of 14.7 times 2016 forecast consensus earnings. This is below its 1 year average p/e multiple of 15.1 times and just slightly above its 3-year average multiple of 14.1 times. Second, financial stocks are surfacing on the positive breakouts list. The financial sector is the largest sector in the TSX composite, with a weighting of over 38 per cent. Year-to-date, this sector has delivered negative returns and is down 2 per cent. Positive momentum into financial stocks would support a higher valuation for the TSX index.

Discussed today is a surprising new addition to the positive breakouts list - Agrium Inc. (AGU-T). Agrium is a fertilizer company, with a diversified product offering, supplying nitrogen, potash, and phosphate. As a result, the company's revenue is diversified across various crop types. Corn, wheat, and soybeans are the company's largest exposures. As well, the company is the largest global retail distributor of crop inputs. Management believes the company has room to expand in the U.S. retail market through acquisitions.

Before the opening bell on Nov.5, the company reported third-quarter earnings ahead of the Street's expectations. Adjusted earnings per share was 71 cents, compared to the consensus forecast of 67 cents. The stock price advanced 1.5 per cent on the better-than-expected results.

Valuation

The stock trades at a price-to-earnings (p/e) multiple of 12.9 times the consensus 2016 earnings estimate. This is above its one-year historical average of 12 times, and its three-year historical average of 10.9 times. In 2009, the p/e multiple climbed to over 14 times. The stock is trading at the upper end of its 5-year historical range.

Analysts' recommendations

According to Bloomberg, there are 13 analysts with "buy" recommendations, 10 analysts with "hold" recommendations, and two with "sell" recommendations with an average one-year price target of $143.50, implying a potential price return of nearly 9 per cent. Price targets range from $131 to $167.

The consensus earnings per share (eps) estimates is $7.15 (U.S.) in 2015, rising 7 per cent to $7.66 in 2016. Management has guided to eps of between $7.10 and $7.40 in 2015.

Dividend policy

The company pays shareholders a quarterly dividend of 87.5 cents (U.S.) per share, or $3.50 cents per annum, equating to an annualized yield of 3.5 per cent. Management increased the dividend earlier this year as well as in late 2014.

Management has been active in its share buyback program.

Technical analysis

Year-to-date, the stock price has increased 20 per cent. This stock is in the materials sector and has outperformed both the TSX index, which has fallen 8.7 per cent year-to-date, as well as the materials sector, which is down 18 per cent year-to-date. It has been a safe haven, with its secure and sizeable dividend yield, for many institutional investors whose mandates require them to have exposure to this sector.

On Friday, there was strong buying in the stock with high volumes traded.

There is upside resistance at $135, and then around $139. The stock has large downside support at $130, just below the stock's 200-day moving average of $130.86.

The relative strength index is at 62. Generally, a reading at or above 70 indicates an overbought condition, and a reading around 50 indicates a neutral condition.

As always, I strongly encourage readers to consult a financial advisor, and to do their own proper due diligence before taking any investment action.

Below is a list of stocks in 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.