FRIDAY,SEPTEMBER13,2019 | THEGLOBEANDMAIL O B9
EYEONEQUITIESDAVIDLEEDER
SUMMIT(SMU.UN-TSX)
CLOSE$12.52, UP 27¢
ROOTS(ROOT-TSX)
CLOSE$2.39, UP 1¢ACTIVISION(ATVI-NASDAQ)
CLOSEUS$55.45, UP 54¢GOLDSTANDARD(GSV-TSX)
CLOSE$1.13,DOWN 5¢DREAMGLOBAL(DRG.UN-TSX)
CLOSE$14.28, UP 17¢Summit Industrial Income REIT
received a “large gain” on the sale
of its interests in three data cen-
tres in a $178-million transaction,
said Canaccord Genuity analyst
Mark Rothschild, who raised his
rating to “buy” from “hold.” “We
view Summit as an excellent ve-
hicle to gain exposure to the
strong Canadian industrial mar-
ket, the GTA in particular,” he
said.
Target:Mr. Rothschild kept a $14
target. The consensus target is
$13.48.
After reducing his financial pro-
jections in the wake of weaker-
than-anticipated second-quarter
results, CIBC World Markets ana-
lyst Matt Bank now says 2019 will
be the second consecutive year of
20-per-cent EBITDA declines for
Roots Corp.“The major issues of
2019 have been related to the
transition to a new distribution
centre, and the costs are very
large,” he said.
Target:Maintaining a “neutral”
rating, he lowered his target to
$3.50 from $4.50. Consensus is
$3.19.Citing the “strong, above-expec-
tations engagement” of its re-
cently launchedWorld of Warcraft
Classicgame, Nomura Instinet’s
Andrew Marok became the third
analyst this month to upgrade
Activision Blizzard Inc.Moving it
to “buy” from “neutral,” Mr. Ma-
rok saidWarcraft’s success helps
create “a much more favourable
backdrop heading into Novem-
ber’s BlizzCon.”
Target:He raised his target to
US$64 from US$59. Consensus is
US$56.40.After Wednesday’s release of a
“mixed” prefeasibility study for
its Railroad-Pinion project, PI Fi-
nancial Corp. analyst Chris
Thompson downgraded Gold
StandardVenturesCorp.to “neu-
tral” from “buy,” calling it a “good
start” but prompting a “retool-
ing” of his valuation. “We were
too aggressive in our previously
modelled expectations,” he said.
Target:Mr. Thompson lowered
his target to $1.30 from $2.60.
Consensus is $2.48.Calling it a “preferred vehicle for
investors looking for internation-
al office exposure,” BMO Nesbitt
Burns analyst Jenny Ma initiated
coverage ofDream Global Real
Estate Investment Trustwith an
“outperform” rating. “In the eight
years since its IPO, Dream Global
has been exceptionally active in
growing and evolving into one of
the largest publicly traded Eu-
ropean office portfolios,” Ms. Ma
said.
Target:She set a $17 target. Con-
sensus is $16.36.WHATAREWELOOKINGFOR?
U.S. large-cap stocks showing
price momentum across multiple
time frames.
We changed our view to bullish
on the S&P 500 after the index
broke above a short-term consoli-
dation zone and key resistance at
2,950. The index also broke above
its 50-day moving average, anoth-
er bullish technical event.
In light of our bullish view of
U.S. equity markets, we followed
our top-down methodology and
looked for large-cap stocks show-
ing strong upward momentum in
anticipation of a breakout to
record highs in U.S. indexes.
THESCREEN
We will be using Trading Central
Strategy Builder to screen for U.S.
large-cap stocks demonstrating
strong upward price momentum.
We will start by screening for U.S.
stocks with a market capitaliza-
tion of at least US$15-billion. This
will limit our search to the largest
and most stable companies in the
market.
Next, we will search for stocks
demonstrating price momentum
across multiple time horizons.
We will screen for a five-day price
performance above 2 per cent, 13-
week price performance greater
than 10 per cent and a year-to-
date performance of at least 20
per cent.
The current price-to-earnings
ratio of the S&P 500 is at 19.6,
therefore we want stocks at or be-low that level to keep valuations
at a reasonable level relative to
the market.
Finally, we were interested in
stocks that are trading within 5
per cent of their 52-week highs
because stocks making new highs
usually continue to do so over the
next six months because of
strong price momentum.MOREABOUTTRADINGCENTRAL
Trading Central is a global leader
in financial market research and
investment analytics for retail on-
line brokers and institutions.
Trading Central’s product suiteprovides actionable trading ideas
based on technical and funda-
mental research covering stocks,
ETFs, indexes, forex, options and
commodities.WHATDIDWEFIND?
Topping our list is telecom and
media conglomerateAT&T Inc.
The stock has just broken above
its 200-week moving average,
which is a strong bullish technical
signal. Note also that AT&T has
the highest dividend yield on our
list, at 5.3 per cent. The company
has been in financial headlines
recently after activist investmentfirm Elliot Management Corp. dis-
closed an investment of US$3.2-
billion in the company. While El-
liot Management called for strate-
gic changes identified in a four-
step plan, the firm expressed
deep conviction in the value of
AT&T’s future, which has helped
to propel the stock higher this
week.
The stock with the largest mar-
ket cap on our list is tech giant
Apple Inc., which has seen an im-
pressive price gain of 41.7 per cent
year-to-date. With a P/E of 19 and
momentum on the upside, the
stock is on its way to test October
highs. This week the company
showcased the new iPhone 11 Pro
and other devices, as well as TV+,
its new video-streaming service
that will be offered at a lower
monthly subscription fee than
competitors such as Walt Disney
Co., Amazon.com Inc. and Netflix
Inc.
The investment ideas present-
ed here are for information only.
They do not constitute advice or a
recommendation by Trading
Central in respect of the invest-
ment in financial instruments. In-
vestors should conduct further
research before investing.Wherethebullsare:Large-capstocksforaU.S.marketbreakout
SelectU.S.large-capmomentumstocksRANK COMPANY SYMBOLMKT.CAP.
(US$BIL.)5DPRICE
PERF.(%)13WPRICE
PERF.(%)YTDPRICE
PERF.(%)1YPRICE
PERF.(%) P/ECHG.
FROM52W
HIGH(%)DIV.
YIELD
(%)RECENT
PRICE
(US$)
1 AT&TInc. T-N 280.0 8.5 20.4 35.7 15.8 16.5 0.0 5.3 38.74
2 EatonCorp.PLC ETN-N 36.9 11.2 11.9 28.2 2.6 17.1 -1.6 3.2 88.03
3 ParkerHannifinCorp. PH-N 23.6 13 11.9 23.7 1.2 16.1 -4.5 1.9184.46
4 SunLifeFinancialInc. SLF-N 25.5 4.7 10.6 30.8 12.1 14.5 -0.1 3.6 43.42
5 T.RowePriceGroupInc. TROW-Q 28.0 8.2 13.4 30.1 7.9 15.1 0.0 2.5120.09
6 AppleInc. AAPL-Q 1,010.0 6.9 15.1 41.7 0.7 19.0 -4.2 1.4 223.59
7 CelaneseCorp. CE-N 15.3 9.2 19.3 38.2 7.7 15.4 0.0 2.0 124.31
8 LamResearchCorp. LRCX-Q 33.6 5.6 30.1 71.9 50.6 17.1 -0.3 2.0 234.01
9 AppliedMaterialsInc. AMAT-Q 47.6 4.1 24.2 57.5 31.2 16.4 -1.6 1.6 51.56
10 NXPSemiconductorsNV NXPI-Q 30.6 8 17.3 50.1 23.6 17.0 -0.5 1.4 110.00
Source:TradingCentralGARYCHRISTIE
NUMBERCRUNCHER
Head of NorthAmerican research at
TradingCentral
S
tella-Jones Inc. appointed
Eric Vachon as its new chief
executive on Thursday, re-
moving some uncertainty that
had been weighing on the stock
over the past two months when
the previous CEO announced he
was stepping down.
The best part of this leadership
transition for investors: After a
recent sell-off, the stock looks
cheap.
The Montreal-based company
makes pressure-treated wood
products largely used for railway
ties and utility poles. While the
business might not sound terri-
bly exciting, Stella-Jones is a
growth stock that has been turn-
ing heads for years.
It has been a steady acquirer,
completing 19 takeovers in Cana-
da and the United States since
2003, driving up annual sales fi-
vefold since 2009. Perhaps more
important to the company’s pro-
file, its shares have delivered a to-
tal return (with dividends) of 718
per cent over the past decade,
outpacing the S&P/TSX Compos-
ite Index by a factor of seven.
But the stock (symbol SJ),
which closed Thursday at $39.56,
has been zigzagging for more
than five years because of incon-
sistent profit, stagnating cash
flow and volatile lumber prices.
And the news in July that Brian
McManus was stepping down on-
ly added to concerns, given that
the long-serving CEO had been
closely associated with Stella-
Jones’s acquisition strategy over
his 18 years at the helm.
On July 15, the day that Mr.
McManus announced his deci-
sion to leave, the stock fell 6.1 per
cent. The sell-off didn’t end
there: The stock was down nearly
20 per cent by Aug. 7.
Now, with Mr. Vachon – cur-
rently the chief financial officer
at Stella-Jones after serving a
number of roles at the company
since his arrival in 2007 – set to
replace Mr. McManus on Oct. 11,
how should investors approach
the stock?
The company is telling inves-
tors what they want to hear: It is
business as usual under new
leadership. At least for now.
In a phone interview with The
Globe and Mail, Mr. Vachon out-
lined his plans in broad strokes,
saying that the first couple of
years will hew closely to the com-
pany’s deal-driven strategy under
Mr. McManus.
“After working 12 years with
Brian, we’ve come up with a com-
mon way of managing things, so
obviously there will be some sim-
ilarities. We do have a plan for the
next 24 months, in terms of
[mergers and acquisitions],
growth and strategic [capital ex-
penditures] we would like to do,”
Mr. Vachon said.
Even after this settling-in peri-
od, expect only subtle adjust-
ments related to how the compa-
ny develops. Mr. Vachon believes
acquisitions remain an impor-
tant part of the strategy, along
with organic growth and the
prospect of returning money to
shareholders in the form of divi-
dends or buybacks.
As for the recent sell-off in the
share price – which has left the
stock trading at just 18.4 times
trailing earnings, or well below
the stock’s average price-to-earn-
ings ratio of 21.5 – he thinks the
downturn was overdone.
“The market needs to realizethat there is a strong team in
place. The strategy has not
changed, and the company’s fun-
damentals have not changed,”
Mr. Vachon said. “Delivering a
few acquisitions will convey the
message that Brian has left be-
hind him a very strong team of
talented folks, and we will contin-
ue to execute on a well-establish-
ed plan.”
Analysts who have comment-
ed on the new leadership remain
upbeat on Stella-Jones.
Benoit Poirier, an analyst at
Desjardins Securities, pointed
out that Mr. Vachon offers conti-
nuity: He has extensive first-
hand experience with the com-
pany over the past 12 years and
has participated in 15 of the ac-
quisitions completed by Stella
Jones.
“Overall, we do not expect a
material reaction to this announ-
cement, as we believe Mr. Va-
chon’s appointment had been
expected by the Street. That be-
ing said, we appreciate that he in-
tends to continue SJ’s strategy to
pursue continental expansion
across all three segments [rail-
way ties, utility poles and resi-
dential lumber] through acquisi-
tions,” Mr. Poirier said in a note.
But the long-term argument in
favour of Stella-Jones rests on its
fundamentals, which look solid.
Mr. Poirier expects railways
will maintain their spending
through 2021 (at high levels),
which bodes well for the market
for rail ties. Even better, he ex-
pects that North American utili-
ties will increase their spending
to improve aging infrastructure,
which should support demand
for transmission poles and un-
derscore Stella-Jones’ attractive
valuation.
If he’s right, then new leader-
ship is a bonus to a strong invest-
ment case.STELLA-JONES(SJ)
CLOSE: $39.56, UP 37¢Howshouldinvestors
approachStella-Jonesnow?
WithanewCEOsetto
takeover,thecompany
istellingshareholders
it’sbusinessasusual
DAVID
BERMAN
OPINIONINSIDETHEMARKET
CANADIANSTOCKS
Canada’s main stock index hit a record intraday high after a
thawing of trade tensions and more stimulus from the Eu-
ropean Central Bank.
The S&P/TSX composite index rose to 16,696.40, beating
the previous high of 16,672.71 set in April. A pullback at the
end of the day cut some of the gains as it closed up 32.14
points to 16,643.28, below the highest-ever close of 16,669.40.
The best-performing stock on the TSX was copper and
gold producer First Quantum Minerals ltd., which climbed 8.5
per cent. Copper prices were up 1.3 per cent.U.S.STOCKS
Wall Street advanced, and the S&P 500 ended the session
within striking distance of its record closing high, buoyed by
positive developments on the U.S.-China trade front and a
promise of continued stimulus from the European Central
Bank.
Technology gains led the S&P 500 and the Nasdaq higher,
while financials gave the biggest boost to the blue-chip Dow,
which closed up for the seventh consecutive session, its long-
est winning streak since May.
The Dow Jones Industrial Average rose 0.17 per cent, the
S&P 500 gained 0.29 per cent and the Nasdaq Composite add-
ed 0.3 per cent.
Shares of Google parent Alphabet Inc. rose 1.2 per cent af-
ter Google reached a US$1.1-billion settlement with French
authorities to resolve a fiscal fraud probe, and after a legal
victory over German publishers over fee demands.COMMODITIES
Oil prices fell about 1.5 per cent after a media report cast
doubt on the possibility of an interim U.S.-China trade deal
and as a meeting of the OPEC+ alliance yielded no decision
on deepening crude supply cuts.FOREXANDBONDS
The Canadian dollar weakened to a six-day low against its
U.S. counterpart as oil prices fell and investors grew skeptical
about a potential thawing of trade tensions between the
United States and China.
The euro gained against the U.S. dollar after the ECB
launched new stimulus but failed to live up to some dovish
market expectations.
Canadiangovernment bond prices were lower across the
yield curve in sympathy with U.S. Treasuries and German
bonds, after the ECB launched new stimulus but failed to live
up to some dovish market expectations. The two-year fell 2.5
Canadian cents to yield 1.603 per cent and the 10-year was
down 23 Canadian cents to yield 1.45 per cent. The 10-year
yield posted its highest intraday level since Aug. 1 at 1.471 per
cent.
The yield on the 10-year U.S. Treasury rose to 1.78 per cent
from 1.73 per cent a day earlier. Higher yields drive interest
rates on mortgages and other consumer loans higher, help-
ing boost bank profits.REUTERS,ASSOCIATEDPRESS, THECANADIANPRESSMarketssummary
REPORTONBUSINESS|