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On today’s TSX Breakouts report, there are 50 stocks on the positive breakouts list (stocks with positive price momentum), and 20 securities are on the negative breakouts list (stocks with negative price momentum).

Discussed today is a small-cap health care stock that appears on the positive breakouts list with its share price closing at a record high on Tuesday. The small-cap stock has seven buy recommendations and a potential near-term catalyst.

This security may be best suited for consideration by investors with a high risk tolerance given the risks associated with the company’s early stage in developing its products. The security highlighted today is Zymeworks Inc. (ZYME-T). Eli Lilly and Company is its largest shareholder, holding over 15 per cent of the shares outstanding. Celgene Corp. is also a large shareholder with an ownership position of 6 per cent.

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

The company

Vancouver-based Zymeworks is a clinical-stage biopharmaceutical company that is currently developing several potential therapies aimed at treating cancer.

The company’s lead product candidate is ZW25, an antibody-drug that is being evaluated in a Phase 1 clinical trial. The Phase 1 study can be divided into three segments. During the first segment, encouraging data was evident, preliminary anti-tumor activity was observed in people with breast cancer and gastric cancer. Now, management is targeting completing its enrollment, gathering, analyzing, and reporting further data from its ongoing Phase 1 clinical study of ZW25. On June 1, the company will provide updated data from its Phase 1 study at the American Society of Clinical Oncology (ASCO) annual meeting, which may be a near-term catalyst for the stock.

A second product candidate is ZW49, an antibody-drug that is in the preclinical development phase. Management is targeting filing an Investigational New Drug (IND) application later this year and advancing this product candidate to a Phase 1 clinical trial.

The company is in the early development stage of potential cancer therapies with its product candidates in the discovery, preclinical, or a Phase 1 clinical trial. Accordingly, there are risks that this company may not successfully develop future therapies. This stock may be best suited for consideration by investors with a high risk tolerance.

The company has partnerships with six major pharmaceutical companies including Celgene, Eli Lilly, GlaxoSmithKline, and Merck. In the company’s preliminary prospectus, management highlighted the significance of these partnerships stating, “These relationships provide our strategic partners with access to components of our proprietary Azymetric and EFECT therapeutic platforms for their development of a defined number of protein therapeutics on a predominantly non-target-exclusive basis. Importantly, these strategic partnerships have provided Zymeworks with non-dilutive funding as well as access to proprietary therapeutic assets, which increase our ability to rapidly advance our product candidates while maintaining worldwide commercial rights to our wholly-owned therapeutic pipeline.”

According to Bloomberg, Eli Lilly is the company’s largest shareholder, holding over 15 per cent of the shares outstanding. Celgene is also a large shareholder with an ownership position of 6 per cent. Another notable shareholder is the Fonds de solidarité FTQ with an ownership position of 6 per cent.

Zymeworks is dual-listed, trading on the Toronto Stock Exchange and the New York Stock Exchange under the same ticker, ZYME. The stock has only been publicly listed for approximately one year. It was listed in April 2017 and the initial public offering price was U.S. $13.

Dividend policy

The company does not pay its shareholders a dividend.

Analysts’ recommendations

This small cap stock with a market capitalization of Cdn $591-million is covered by eight analysts on the Street, of which seven analysts have buy recommendations and one analyst (from EVA Dimensions) has a ‘sell’ recommendation.

The eight firms providing research coverage on the company are as follows in alphabetical order: Barclays, Canaccord Genuity, Cormark Securities, EVA Dimensions, Ladenburg Thalmann & Co., Paradigm Capital, Raymond James, and Wells Fargo Securities.

Revised recommendations

Earlier this month, Tania Gonsalves, the analyst from Cormark Securities, lifted her target price to U.S. $20.50 from U.S. $19.50. Dr. Wangzhi Li, the analyst from Ladenburg Thalmann, also increased his target price by U.S. $1, raising it to U.S. $26 (the high on the Street). David Novak from Raymond James bumped his target price to U.S. $22 from U.S. $18. Dr. Arlinda Lee from Canaccord Genuity raised her target price to U.S. $21 from U.S. $18. Barclays analyst Gena Wang upgraded the stock to an “equalweight“ recommendation from an “underweight” recommendation and increased her target price to U.S. $15 from $8.

Financial forecasts

The company is a biopharmaceutical company undergoing products development with its lead products in the preclinical and Phase 1 trials. As such, material sales are not anticipated to be realized for many years and the company is currently not profitable.

Valuation

Given that sales are not anticipated for many years out, the stock can be valued using a discounted cash flow analysis in which future forecasted cash flows are discounted back to their present values.

The average 12-month target price is U.S. $19.94, implying the share price has 11 per cent upside potential over the next year. Individual target prices range from a low of U.S. $15 (from the analyst at Barclays) to a high of U.S.$26 (from the analyst at Ladenburg Thalmann). Individual target prices provided by seven analysts are as follows in numerical order (all target prices are expressed in U.S. dollars): $15, $17, $20, $20.50, $21, $22 and $26.

Insider transaction activity

Year-to-date, no transactions in the public market have been reported by insiders.

Chart watch

The stock has a limited trading history making technical analysis a challenge and limiting its value. The stock was publicly listed in April 2017 and since then, the share price has been quite volatile.

Several months after the stock began trading, the share price collapsed, closing at a record low of $8.75 on August 24. However, the share price began to gain momentum in early 2018 and has rallied an astounding 144 per cent year-to-date.

Looking at key resistance and support levels, the share price has an initial ceiling of resistance around Cdn $24. On a pullback, the stock price has initial downside support around $20. Failing that, there is support around $18 and strong support around $16.

This small-cap stock has greater liquidity on the New York Stock Exchange with rather light trading volume on the Toronto Stock Exchange. On the Toronto Stock Exchange, the three-month historical daily average trading volume is approximately 10,000 shares.

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.

Positive BreakoutsMay 22 close
AOI-TAfrica Oil Corp $1.42
ALA-TAltaGas Ltd $25.85
ATH-TAthabasca Oil Corp $1.96
ATA-TATS Automation Tooling Systems Inc $20.11
BAD-TBadger Daylighting Ltd $28.93
BMO-TBank of Montreal $101.89
BNE-TBonterra Energy Corp $17.00
BYD.UN-TBoyd Group Income Fund $112.89
DOO-TBRP Inc $54.97
CAE-TCAE Inc $25.07
CFX-TCanfor Pulp Products Inc $22.29
WEED-TCanopy Growth Corp. $39.44
CJ-TCardinal Energy Ltd $5.72
CVE-TCenovus Energy Inc $14.35
CMG-TComputer Modelling Group Ltd $10.31
DRG.UN-TDream Global REIT $14.65
DRM-TDREAM Unlimited Corp $10.37
ERO-TERO Copper Corp. $9.10
EIF-TExchange Income Corp $35.53
FCR-TFirst Capital Realty Inc $20.98
FR-TFirst Majestic Silver Corp $9.36
FN-TFirst National Financial Corp $28.50
GXE-TGear Energy Ltd $1.21
GSY-Tgoeasy Ltd $42.79
THCX-THydropothecary Corp. $5.30
IMV-TIMV Inc. $9.05
IPL-TInter Pipeline Ltd $24.50
IPCO-TInternational Petroleum Corp. of Sweden $8.74
IVN-TIvanhoe Mines Ltd $3.50
MFC-TManulife Financial Corp $25.10
MEG-TMEG Energy Corp $9.31
MRU-TMetro Inc $43.18
MPVD-TMountain Province Diamonds Inc $3.63
PDL-TNorth American Palladium Ltd $11.71
NVO-TNovo Resources Corp. $6.22
OGI-TOrganigram Holdings Inc. $4.98
PEO-TPeople Corporation $7.76
PSH-TPetroshale Inc. $2.25
PHO-TPhoton Control Inc. $2.32
PTS-TPoints International Ltd $17.17
SVM-TSilvercorp Metals Inc $3.77
STLC-TStelco Holdings Inc. $26.84
STEP-TSTEP Energy Services Ltd. $12.72
RNW-TTransAlta Renewables Inc $12.21
TFII-TTransForce Inc $38.48
WEF-TWestern Forest Products Inc $2.95
WCP-TWhitecap Resources Inc $10.01
WSP-TWSP Global Inc $66.62
Y-TYellow Pages Ltd $8.28
ZYME-TZymeworks Inc. $23.19
Negative Breakouts
ARE-TAecon Group Inc $17.25
ATD.B-TAlimentation Couche-Tard Inc $52.25
BTO-TB2Gold Corp $3.36
BGM-TBarkerville Gold Mines Ltd. $0.58
BDT-TBird Construction Inc $7.36
BLX-TBoralex Inc $21.17
CGY-TCalian Group Ltd. $29.40
DII.B-TDorel Industries Inc $22.32
GCG-TGuardian Capital Group $23.61
KPT-TKP Tissue Inc $10.12
HIP-TNewstrike Resources Ltd. $0.87
OGC-TOceanaGold Corp $3.16
PZA-TPizza Pizza Royalty Corp $12.92
POM-TPolyMet Mining Corp. $0.99
QTRH-TQuarterhill Inc. $1.73
SEC-TSenvest Capital $228.00
ZZZ-TSleep Country Canada $31.84
RAY.A-TStingray Digital Group Inc. $9.40
TOT-TTotal Energy Services Inc $12.23
ZCL-TZCL Composites Inc. $9.88

Source: Bloomberg

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 10:27am EDT.

SymbolName% changeLast
MRK-N
Merck & Company
-0.33%131.32
LLY-N
Eli Lilly and Company
+1.63%790.84

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