On today's TSX Breakouts report, there are 38 stocks on the positive breakouts list (stocks with positive price momentum), and 12 stocks are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a stock that appears on the positive breakouts list. The stock has long-term upside potential driven by attractive industry fundamentals. The share price has rallied over 60 per cent year-to-date and based on the consensus 12-month target price, there is the potential for a further 31 per cent gain. However, in the near-term, the share price may be due for a pause or pullback given the stock's sharp 19 per cent price increase realized last week. The company discussed today is Lithium Americas Corp. (LAC-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Vancouver-based Lithium Americas' key focus is on advancing two of its lithium projects: the Cauchari-Olaroz lithium project located in Argentina and its 100-per cent owned Lithium Nevada project located in the U.S.
Cauchari-Olaroz has one of the largest lithium brine resources in the world. The mine will have access to power and water and is conveniently located on an international highway. In March 2016, the company entered into a 50/50 joint venture on this project with Chile-based Sociedad Química y Minera de Chile S.A., or SQM, the world's largest lithium producer. The Cauchari-Olaroz lithium project is anticipated to begin production in 2019. According to an updated feasibility study, Cauchari-Olaroz has expected average battery-grade lithium production of 25,000 tonnes per annum and a mine life of 40 years. Operating costs are expected to be low, below $2,500 (U.S.) per tonne.
Lithium prices have been high due to rising demand and limited supply. Lithium-ion and lithium polymer rechargeable batteries are used in cell phones, laptop devices, and electric vehicles – and demand for these products continues to grow. Last month, at Lithium Americas' annual general meeting, management highlighted in the presentation that, "Based on announced plans by auto OEMs (original equipment manufacturers) for EVs (electric vehicles), the lithium market is expected to grow over 15 per cent per year until 2025."
The company has sufficient capital to fund the advancement of the Cauchari-Olaroz project. In June, the company completed a $172-million (U.S.) financing with Ganfeng Lithium, China's largest integrated lithium producer. In addition, in January, management announced a $112-million (U.S.) investment from Bangkok-based Bangchak Petroleum.
Dividend policy
Management is focused on advancing its projects, and as a result, the company currently does not pay its shareholders a dividend.
Analysts' recommendationsThere are four analysts covering this small cap stock with a market capitalization of $564-million. All four analysts have buy recommendations.
The four firms that providing research coverage on the company are as follows in alphabetical order: Canaccord Genuity, Cormark Securities, Eight Capital, and National Bank Financial.
Valuation
The company is in the development phase of its projects and as such a ramp-up in revenues in several years away. Consequently, the stock can be valued using a discounted cash flow analysis.
According to Bloomberg, the one-year consensus target price is $1.69, suggesting there is over 30 per cent upside in the share price over the next 12 months. It should be noted that target prices range widely from a low of $1.40 (implying nearly 9 per cent upside potential) to a high of $2 (suggesting there is 55 per cent upside). Individual target prices in numerical order are as follows: $1.40, $1.50, $1.85 and $2.
Revised recommendations
Over the past several months, target prices and recommendations have been stable.
Insider transactions
Recent insider trading activity has been mixed with both buying and selling transactions reported.
First, on the buy side, two insiders were active in the market. On August 23, Jonathan Evans, who sits on the board of directors, purchased 50,000 shares at an average price per share of 83.69 (U.S.), initiating a portfolio position.
In July, the chairman of the board George Ireland purchased 100,000 shares at an average price per share of 91 cents on July 21, July 20, and July 19, representing a total purchase of 300,000 shares over three consecutive days. These three trades lifted his portfolio's holdings to 2,070,229 shares.
On the sell side, two management executives were recent sellers. On August 30, the company's chief financial officer Eduard Epshtein sold 171,122 shares in the market. In addition, he sold 50,356 shares at an average price per share of $1.05 on August 16. His remaining portfolio balance post these transactions stood at 1,050,000 shares.
On July 25, Tracy Hansen, vice-president –secretary, sold 50,000 shares at an average price per share of 98 cents. At the end of July, the portfolio held 437,411 shares.
Chart watch
Year-to-date, this materials stock has seen its share price rally by a stellar 61 per cent. While the price return is impressive, the stock price can be quite volatile. For instance, in late-February, the share price was above $1.20; however, by late-March, the stock price had slipped to below 90 cents. This volatility may provide patient investors with a future buying opportunity as the share price could see another dip given its sharp recent price move (rising 19 per cent last week).
On Friday, the stock closed at its highest level since 2011 – rallying 1.6 per cent on high volume. Over 2.2-million shares traded on September 1, well above its historical three-month daily average trading volume of approximately 1.2-million shares. During the previous trading session, on August 31, over 9-million shares traded.
In August, the stock price increased nearly 25 per cent. The relative strength index is now at 77, indicating the stock is in overbought territory. Generally, a reading at or above 70 suggests an overbought condition. Given the sharp price increase, the share price may soon be due for a pause in order to digest its recent gains.
In terms of key resistance and support levels, there is initial overhead resistance around $1.30, and after that around $1.50. There is strong downside support around $1, at its 50-day moving average and close to its 200-day moving average (at 95 cents).
==
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 indices 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.
If you want to receive an automatic link to all reports that I write, follow me on Twitter at @jennifer_dowty