Studies have shown that following insider buying can lead to market-beating returns. After all, what better way is there from management or members of the board to show faith in their companies than buying the shares? Below are a few Canadian names whose insiders have been noticeably bullish in the last three months going into their quarterly earnings.

First Quantum Minerals Limited (TSX:FM)

Catalyst: Q3 earnings on October 28.

Those expecting a turnaround for First Quantum are not alone.

It would appear that the company’s insiders bought into the struggling miner’s improving financials following its second-quarter earnings report. For Q2 2016, First Quantum seemed to have taken the right steps to bolster its balance sheet, reporting $895 million unrestricted cash, $593 million in undrawn facilities, and $553 million of working capital.

Near-term growth drivers for the company also include the completion of a $2.5 billion financing deal for the Cobre Panama project in late 2016 and early 2017, along with additional sales of non-core assets to further increase its liquidity.

Brookfield Property Partners LP (TSX:BPY.UN)(NYSE:BPY)

Upcoming catalyst: Q3 earnings on November 2

Brookfield’s strong dividend growth and excellent balance sheet have clearly not gone unnoticed by its insiders, who were also no doubt drawn to the stock’s discount (albeit fast closing) to its net asset value (NAV) of US$29.50. Insiders were not the only ones after Brookfield’s well-diversified portfolio of international real estate properties; institutional ownership for the LP increased to 73.3%, as per the latest SEC filings.

Shaw Communications Inc (TSX:SJR.B)(NYSE:SJR)

Upcoming catalyst: Q4 earnings, November 2

Utilities such as Shaw have been big favourites of income investors, as low interest rates are expected to persist in Canada for the foreseeable future. Shaw in particular is popular with the company’s insiders most likely due to the growth opportunities presented by its new direction as a mobile carrier.

Shaw is currently set to do battle with incumbent carrier Telus Corporation in western Canada, and analysts will be paying close attention to the company’s wireless metrics such as net users added, average revenue per user, and wireless margins. But, if it’s any indication, Shaw’s insiders seem to be quite bullish about its foray into the mobile arena.

The bottom line

Tracking insider activity can be one of the most fruitful aspects of the security analysis process. While it should not be the primary factor regarding a stock purchase, knowing that you are investing along with the insiders of a company can offer a reassuring sentiment for your bullish thesis.

The post Insiders Are Buying These Companies Ahead of Earnings: Should You? appeared first on The Motley Fool Canada.

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The loonie took a dive against the greenback Friday morning as expectations of a rate cut in Canada resurfaced following dismal economic data. As reported by Stats Canada, retail sales in Canada fell .1% versus a consensus .3% gain, while CPI climbed just 1.3% in September–shy of forecasts for an increase of 1.5% year over year.

The releases came in the wake of the Bank of Canada’s (BoC) decision to keep interest rates unchanged in Wednesday’s quarterly policy report, while slashing GDP forecasts to +1.1% from +1.3%, this year. As the probability of a rate cut in Canada increases, look to some of the following names to guard against the falling Canadian dollar.

Ex. 1: Current implied probability ranges (one standard deviation) for the USD/CAD

Ex 2. BoC rate path probabilities

Agricultural firms

Although grain prices are expected to remain soft in 2016 thanks to oversupply concerns, the weaker loonie should alleviate some of the margin pressure faced by Canada’s agricultural firms. One such company to watch for is pulse and staple food processor AGT Food and Ingredients Inc. (TSX:AGT) (formerly Alliance Grain Traders Inc.), which should see a competitive price advantage when exporting to the U.S. markets.

A weakening loonie also means higher revenues for  Ag Growth International Inc. (TSX:AFN), which generates the bulk of its sales in the U.S. and has only a marginal amount of its costs in U.S. dollars. As per its second-quarter filings, a 10% increase in the U.S. dollar versus the Canadian dollar would result in a 10.5% increase in sales as well as a $5.4 million increase in FX gains.

Manufacturers

Canadian manufacturers across the board will generally benefit from a lower loonie. For example, Ontario-based Exco Technologies Limited (TSX:XTC) recently reported an increase of $16 million in Q3 sales thanks to a USD/CAD exchange rate that was 10% higher (US$1.33 versus CAD$1.21) than the prior year.

Another manufacturer that benefits from a depressed loonie is packaging producer Winpak Ltd. (TSX:WPK), which experiences a $51 million increase to its bottom line from every 1% gain in the exchange rate.

Finally, Stella-Jones Inc. (TSX:SJ), which supplies lumber products to railroad operators and utility companies, saw a positive impact on the rallying U.S. dollar versus the Canadian dollar. The company reported a $13.2 million positive impact from currency fluctuations in the second quarter. Moreover, as reported by Bloomberg, as the bulk of Stella-Jones’s sales are the U.S., its products will be viewed as “cheaper” than the competition, which bodes well for its bottom line.

Financials

Finally, the decoupling of monetary policy between Canada and the United States is very favourable for Manulife Financial Corp. (TSX:MFC)(NYSE:MFC), which realizes a higher foreign currency translation gain from U.S. revenue sources. Furthermore, Manulife will also see its U.S. margin pressures alleviated once the Fed hikes again in December.

Manulife pays out a steadily growing 3.8% yield, which makes it a good hedge against a low loonie and low interest rate environment.

The post The Loonie Is Going to Tank but These Stocks Will Benefit appeared first on The Motley Fool Canada.

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REITs are popular with income-seeking investors due to their required payout minimums, high yields, and diversification across a broad range of real estate assets. However, just like any other investment, a REIT’s payout is only as good as the underlying business mechanics and its balance sheet. Below are three REITs that offer generous dividends, but come with dangerously high debt levels.

Northview Apartment REIT (TSX:NVU.UN) is currently paying out a yield of 8%, or 79.6% of its funds from operations (FFO), while trying to manage a debt load that is 14 times EBITDA and 60.2% of its gross book value; compare this to 51.3% in Q2 2015. Northview’s latest earnings report was a disaster as the REIT’s heavy exposure to Alberta dragged down same property net operating income by an incredible 11% year over year, even after accounting for the wildfires.

That being said, to its credit, Northview is expected to close on a $79 million disposition of non-core assets in Q3, which should reduce its debt-to-gross book value by .9%.

Artis Real Estate Investment Trust (TSX:AX.UN) is another highly levered (8.4 times EBITDA; 52.9% of gross book value versus 49% in Q2 2015) Alberta play with a payout ratio of 71% of its FFO; it also has 84.4% of adjusted funds from operations (AFFO). Also, much like Northview, Artis was hit hard from the economic downturn. Calgary office NOI fell by 13.9% in Q2 of this year compared to Q2 2015.

Furthermore, Artis took a fair-value write-down of $21.6 million on investment properties in Q2, even as it looks to shed underperforming properties to generate some much-needed cash. However, don’t expect management to use the proceeds of the property sales to delever its balance sheet, as the company has made clear its intentions to continue expanding into the U.S.

Cominar Real Estate Investment Trust (TSX:CUF.UN) has the lowest exposure to western Canada, but that doesn’t mean its balance sheet has fared much better. This primarily Quebec-based commercial REIT pays out over 100% of its AFFO. It has a net-debt-to-fair-market-value-of-assets ratio of 54.4% (versus 54.6% in Q3 of last year). In Q2 of this year, Cominar reported across-the-board negative NOI growth for its office, retail, and industrial/mixed-used segments (-2.4%, -.8%, and -3.5%, respectively) even as occupancy rates ticked upwards.

Finally, one of Cominar’s largest tenants, Bank of Nova Scotia, will not be renewing its lease of Scotia Centre in Calgary and will take with it roughly .5% of Cominar’s rental revenues. To Cominar’s credit, however, it has managed to shed over $210 million of non-core assets in 2015 and recently completed a $200 million equity raise to aid in its deleveraging efforts.

The bottom line

Not all REITS are equal as the aforementioned three have shown. Although they pay high yields, it remains to be seen just how sustainable their payouts will be in the face of continued weakness in the Canadian (namely Albertan) economy. On the flip side, they are trading at significant discounts to their net asset values (NAV), so if you can tolerate the risk, what’s a little debt overhang for some really juicy yields?

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For shareholders of Teck Resources Ltd. (TSX:TCK.B)(NYSE:TCK), the dismal report from the company’s single biggest customer, China, was an unwelcome surprise. Canada’s largest diversified miner saw its shares pressured yesterday morning in response to broad sell-offs in commodities as concerns about China’s growth resurfaced. But was the report really that bad for Teck? Let’s take a look.

China’s exports dropped more than expected in September

If you were to sum up the overall data in one word, it would be abysmal. According to Bloomberg, U.S. dollar–denominated exports from the world’s second-largest economy declined 10% year over year to the lowest level in seven months, while imports fell 1.9%.

Furthermore, the drop in exports wiped US$42 billion from China’s trade surplus, placing further pressure on the yuan, which has already fallen 3.4% against the U.S. dollar year to date. Moreover, the bad data has placed pressure on commodities such as copper, which is approaching seasonally weak demand.

The bad data puts a damper on copper prices

According to the report, China’s copper imports fell 26.1% year over year in September, while falling 10,000 tonnes lower from August. To further aggravate copper bulls, yesterday’s report follows a bearish outlook from Goldman Sachs, which warned of looming oversupply concerns for the ductile metal as the top-20 copper producers ramp up production towards the end of 2016.

But steel demand offsets copper slump

That being said, the release wasn’t all doom and gloom. The reported also highlighted that China’s iron ore demand continues to be strong in the month of September, which saw 92.9 million tonnes of iron ore imported–an increase of 6% from August.

Moreover, raw materials for steel production reached 763 million tonnes–an increase of 9.1% year over year–as Chinese producers largely shrugged off lower steel prices thanks to strong steel demand from its robust housing market.

Finally, on the zinc front, the bull case for the metal remains intact as supply overhangs are kept in check thanks to China’s policies on limiting domestic zinc mining. Furthermore, as Reuters reports, Glencore PLC (the world’s largest zinc miner) has provided no indications of resuming full-scale production as it waits for further price advancements before turning up its formidable output.

A correction for Teck might be presumptuous 

Yesterday’s 5% drop in Teck shares is minuscule compared to the remarkable run the stock has made year to date. Even if China’s growth sputters into the twilight months of 2016, as long as steel demand is robust and Beijing continues to prop up the housing market, Teck should be able to weather the storm on the back of its met coal and zinc production. In other words, yesterday’s abysmal data might prove to be immaterial in the near term.

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Air Canada (TSX:AC)(TSX:AC.B) stock has been soaring high ever since the company announced a refinancing deal that will wipe $355 million of debt off the books and result in interest savings of $60 million per year. News of the deal was met with approval from Bay Street; several firms upgraded shares of Canada’s largest air carrier in the wake of the announcement.

For investors closely following the stock, the refinancing is sign of the much-needed change in the company’s risk profile and a clear buy signal for the stock.

Refinancing deal is bullish

Air Canada stock has rallied 31% since the deal was announced on September 26. For those not familiar with the stock’s history, Air Canada had been trading a deep discount to U.S. peers and to rival WestJet Airlines Ltd. (TSX:WJA).

How deep? Well, prior to the rally, Air Canada was trading at less than four times its estimated 2017 EBITDAR and four times 2017 earnings versus 4.5 times EBITDAR and almost 10 times earnings for WestJet and 10.5 times average earnings for similar U.S. carriers (consensus figures).

What are the reasons behind the cheap valuation? The cheap valuation is due to concerns over Air Canada’s capacity, free cash flow generation, and its debt-heavy balance sheet.

Bear case no longer holds up

While Air Canada’s valuation had long been pressured due to the aforementioned capacity, cash flow, and leverage concerns, the bear case has been largely played out, and the discount gap is sure to close. Although Air Canada’s available seat miles (“ASM,” a measure of an airline’s capacity) had decoupled from Canadian GDP in the past, a pending rebound in the Canadian economy will soon decrease the ASM/GDP spread.

Moreover, economic growth and the conclusion of Air Canada’s expansion cycle in 2017, as well as continued cost-cutting measures will carry the company back to free cash flow positive territory. Therefore, leverage seems to be the last remaining piece of the puzzle before the bear case is debunked.

And debunked it has been.

The latest refinancing deal means Air Canada can eliminate $355 million from its balance sheet, while generating annual interest expense savings of approximately $60 million. More importantly, the deal will also decrease Air Canada’s sector-leading net debt of 2.7 times EBITDAR towards its target of net debt of 2.2 times normalized EBITDAR by 2018.

Bay Street approves

It would appear that the Street has also taken notice of Air Canada’s new direction; in the days since the refinancing, Royal Bank of Canada upgraded shares of to “Top Pick” while increasing the price target to $18 from $14, and Bank of Montreal raised its price target by $2 to $15, while maintaining its outperform rating. Overall, the vast majority of analysts covering the stock has given it a solid buy rating.

In conclusion, the bear case has been dismantled, the Street has turned bullish, and Air Canada’s stock is about to take off, so why not hop on for the ride?

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Royal Bank of Canada’s Mid-Cap Class Advantage fund and Phillips Hager & North’s Small Float fund have been two of Canada’s top-performing mutual funds, posting year-to-date returns of 27% and 23%, respectively. The benchmark, smashing performance of these two actively managed funds has been due in no small part to their positions in Seven Generations Energy Ltd. (TSX:VII)–a stock that has returned a staggering 136% in 2016.

For those just hearing about this mid-cap, natural gas player, here are a few pointers to get you up to speed.

A pure play natural gas company in the Montney Basin 

Seven Generations is a natural gas energy company focused on acquisitions and developments of high-quality, hydraulic, fracturing-based projects along the Kawka River in the Grand Prairie area. The bulk of Seven Generations’s developments are in the gas-rich Montney Basin, which has some of the lowest breakeven prices for condensate rich gas in North America.

The low cost of production has allowed Seven Generations to ramp up production dramatically, even in the face of slumping energy prices. Moreover, Seven Generations’s cash flow generation has been top notch with funds from operations increasing at 100% compounded annual rate since 2011.

Ex 1. Low breakeven costs at Montney means Seven Generations can weather a prolong slump in energy.

Ex 2. Seven Generations has shown tremendous production and FFO growth.

Accretive acquisition spree

Since its debut on the TSX in 2014, Seven Generations has been busy on the M&A front. In July 2016 Seven Generations acquired Paramount Resources Ltd. in a transaction worth $1.9 billion. The counter-cyclical acquisition is expected to be accretive within a year and will boost Seven Generations’s high value acreage by 40% and production volume by 30,000 boe/d.

Along with its acquisition of Paramount, Seven Generations acquired a minority stake in Vancouver-based Steelhead LNG in a joint venture to explore overseas LNG markets. The partnership with Steelhead is expected to be conducive towards Seven Generations’s long-term value-creation strategy and could provide access to a variety of alternative natural gas markets.

Latest earnings report reinforces bull case

While EPS in its latest reports came below consensus (-.19 vs. .03), Seven Generations announced production volumes of 117,353 boe/d and funds from operations of $.66/share (vs. $.47 for Q2 2015). The production volume reflected a 33% growth from Q1, while cash flow was significantly higher than consensus figures.

More impressively, the production growth and cash flow generation was largely organic, as capex was at $219 million for the reported quarter–in line with management’s Q1 forecast of $900-950 million in expenditures for FY 2016.

Final considerations

Although income investors might skip Seven Generations as it doesn’t pay any dividends, it’s hard to argue with the tremendous growth story.

Currently, Seven Generations has demonstrated that management can execute production targets even in the face of slumping energy prices. Moreover, Seven Generations has shown tremendous capital discipline while growing its asset base with leverage ratios in line with industry norms.

In summation, if you are looking for a well-balanced and well-managed natural gas play that’s just beginning to take off, then look no further than Seven Generations.

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Analysts’ forecasts of Canada’s bud industry range from a peak market size of $2.5 billion in 2020 following full legalization (Mackie Research) to $8 billion by 2024 (Dundee Capital). This multi-billion-dollar growth opportunity, combined with the accommodating platform of the Liberal Party, has created a very bullish case for marijuana across both the medical and recreational spectrum.

Patient enrollment in medical marijuana expected to exceed estimates

Currently, Health Canada forecasts the medical marijuana market to reach 450,000 patients by 2024 with $1.3 billion in annual sales. However, according to analysts from Dundee Capital, that estimate is too conservative. Based on the success of legalization in a number of states in the U.S., Dundee estimates that medical marijuana sales could reach $3 billion in annual sales alongside a recreational market of $3-5 billion in annual sales. Furthermore, patient enrollment is estimated hit 100,000 by Q1 of 2017–far exceeding Health Canada’s estimates.

Recreational opportunities will be even greater than health care

Based on Colorado’s example, the recreational market is poised to grow even greater than the medical sector after legalization. Furthermore, in April of this year the Trudeau government announced it will be filing a bill in spring 2017 for the legalization of recreational marijuana. Moreover, the government has also commissioned a federal-level task force composed of health professionals, academics, and members of law enforcement to determine the feasibility of recreational legalization.

If the task force’s findings, scheduled to be released in November of this year, are favourable, legalized recreational marijuana could be a reality as early as 2018. This potential for full-blown legalization, combined with estimated peak sales of over $5 billion by analysts, has led to overwhelming bullish sentiment around the small-cap producers, which are mostly listed on the TSX venture.

Caveat emptor: legalization is not a sure thing

Though we may be on the precipice of legalization, it doesn’t mean that it is a certainty.

First and foremost, is a favourable opinion of the Federal task force is needed; then, of course, is the long road towards royal assent for the proposed legislation.

Second, while the majority of Canadians currently support legalized marijuana, a survey by the Canadian Medical Association found that most doctors recommend further research on the harms of cannabis usage. Doctors also agree that THC, the main psychoactive compound in marijuana, must be carefully regulated.

Third, legislation on the national level must be considered within the context of existing international treaties–as archaic as they might be. Legalization on a national level would pressure the Canadian government to either elevate marijuana as a constitutional right, which is unfeasible, or bow out of international treaties.

Although there is still a hazy cloud of uncertainty surrounding legalization, if you must speculate, Canopy Growth Corp. (TSX:CGC) might be the safest bet, owing to its established market position and cross-border partnerships in both the recreational and medical facets of the business.

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Investing in telecoms is not exactly an exhilarating affair. Momentum chasers looking for tremendous earnings growth and a chance to make a quick trade should generally avoid Canada’s boring and big telcoms in Telus Corporation (TSX:T)(NYSE:TU), BCE Inc. (TSX:BCE)(NYSE:BCE), Rogers Communications Inc. (TSX:RCI.B)(NYSE:RCI), and recently, Shaw Communications Inc. (TSX:SJR.B)(NYSE:SJR).

But as long-term investments, the Big Three (feat. Shaw) can be enticing, thanks to their stable revenue streams, industry barriers to entry and their strong yields. But are all telecoms created equal? In other words, is there a telcom that stands above the others? Let’s find out.

Valuations

On a valuation basis, Telus and Shaw are trading at discounted multiples to the peer median thanks to the former’s exposure to Alberta plus steepening competition to its wireline unit, and the latter’s elevated capex profile and lower growth prospects during the transition from media company to a pure-play telcom. On the other hand, Bell and Rogers are richly valued due to their market dominance.

Ex 1. Telecom comps

Growth drivers

Currently, Bell, Rogers, and Telus have all introduced their own version of next-gen internet. On the horizon, we can expect to see further penetration of Rogers’s 1gbps internet service IGNITE through eastern Canada, while Telus is in the midst of a multi-billion roll-out of high-speed fibre to the home (FTTH) to customers across B.C. and Alberta. Not to be outdone, Bell has also introduced FTTH to select regions in Ontario and Quebec.

While Shaw is sitting out of the fibre revolution, the company has focused its growth bets on its entry into the wireless arena. Earlier this year, Shaw caused quite a stir when it closed on its purchase of western Canadian–based WIND mobile, while selling its media assets to Corus Entertainment Inc.

Although it’s too early to say whether Shaw’s long-awaited move into telecom was the right call, Shaw is expected to undertake costly upgrades to WIND’s aging 3G network to the more competitive, LTE standard. Furthermore, you can also expect Shaw to hunt for lower band spectrum to increase WIND’s coverage.

In terms of their current core business, Telus and Rogers lead the pack with their low churn rates and blended year to date average revenue per unit (ARPU).

Ex 2. & 3. Churn rates and Blended ARPUs

And the winner is…

Although picking a telecom is akin to choosing a favourite type of vanilla ice cream, the one telcom that edges out the others is Telus.

On a valuation basis, Telus is trading at a discount to its peers while paying out a hefty (and manageable) yield. While concerns over growing competition with Shaw in western Canada are valid, especially as the latter presses forward with its X1 TV platform, Shaw still has a long ways and a lot of cash burn to go before it can be a viable challenger in the wireless space.

Furthermore, as it currently stands, Shaw’s payout ratio is a whopping 175% (vs. 63% for Rogers, 76% for BCE, and 52% for Telus), which is a heavy burden to bear in the midst of its transition.

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They say “it’s always darkest before dawn,” and things can’t get any darker for Avigilon Corp. (TSX:AVO). The Vancouver-based video surveillance equipment designer/manufacturer was once the tech darling of the TSX, soaring over 875% between 2012 and 2014 as investors flocked to its tremendous sales growth and innovative line up of products.

However, just as quickly as it rose, the stock returned all of its gains as members of the c-suite began to exit the company, margins contracted, competition in the security space heated up, and–worst of all–its much-lauded growth began to falter. Now, following a Q2 2016 earnings report that was as ugly as it gets, the stock is trading at a level not seen since 2012. For those looking to pick up growth at a very reasonable price, Avigilon becomes quite hard to ignore.

Vision versus reality

Avigilon shareholders are currently stuck between CEO ambition and market expectations. On one hand, CEO Alex Fernandes has made sacrosanct his vision of Avigilon reaching an annual run-rate revenue of $500 million by the end of 2016. On the other hand, much to the chagrin of the market, this goal comes at the expense of contracting gross and EBITDA margins and aggressive capital expenditures.

That being said, Fernades’s tunnel vision has largely come to fruition. Avigilon has increased its quarterly revenues on a year-over-year basis for 34 consecutive quarters, while annual revenue has grown 84% on a compounded annual rate between 2008 and 2015 from $5.2 million to $369.4 million.

However, the margin issue came back to haunt Avigilon with the Q2 report highlighting a 50% gross margin (versus 57% in Q1) stemming from higher than expected operating expenses and price cuts to the H3 camera line.

Sell-off presents a buying opportunity

The disappointing Q2 numbers have led Avigilon to trade at a heavy discount to its peers. Currently, the stock is valued at just 9.7 times FY 2016 EBITDA and 1.1 times 2016 sales (Thomson Reuters estimates) versus sector averages of 18.7 times EBITDA and two times sales for the surveillance vendors, and 8.7 times EBITDA and 1.5 times sales for the Canadian hardware names (Bank of Nova Scotia Equity Research).

This discounted valuation is expected to last into second half of 2016, as margin contractions continue to prevail in the face of product discounts, fixed costs related to its new U.S. manufacturing facility and increasing workforce. In the interim, however, Avigilon’s appetite for PP&E should be largely satiated as the $42 million purchase of the Vancouver office complex and the completion of its U.S. manufacturing facility are in the rear-view mirror with the boost to cash flow put towards paying down its debt load.

Buyout likely?

Finally, at these valuations, Avigilon could very well be the target of an acquisition, especially as mergers and acquisitions in the surveillance space have started to heat up. Based on precedence transactions in in the sector, such as the takeout of Axis AB by Canon, we can expect a suitor to pay three to four times projected FY 2016 sales for Avigilon, which works out to about $25 per share–a nice premium to the September 8 closing price of $8.93.

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The start of 2016 saw shares of Teck Resources Ltd. (TSX:TCK.B)(NYSE:TCK) plummet to levels not reached since the Great Recession. Fast forward seven months later, with fears of a global economic slowdown and a hard landing in China’s economy largely in the rear-view mirror, Teck shares have rallied a staggering 300% off their lows.

But as remarkable as this turnaround has been, Teck has also reached dangerously overbought levels. In other words, those on the sidelines looking to get in on the action might be better served by waiting for a more attractive price and valuation.

Teck currently trades at a premium to commodity spot prices

In the midst of their fantastic rally, Teck’s shares have largely overshot the spot commodity prices, as apparent by the decoupling shown in the figure below, from both the broader commodity (green) and copper (red) indices.

Furthermore, while Teck continues to track the zinc break out, zinc prices would have to reach $1.60/lb, a 50% premium to the spot price, to justify Teck’s current market cap (based on Bank of Nova Scotia’s 2017 estimates).

Finally, although metallurgical coal prices have also rallied significantly pass the US$130-per-tonne level, the current spot price is still below Teck’s share implied premium of US$145 per tonne. Moreover, the bulk of the move in metallurgical coal will most likely prove to be temporary, as the market adjusts to the recent structural and policy shifts from China and India. Of note, the consensus forecasts for metallurgical coal continue to be well below the current price at just US$80 per tonne for the rest of 2016.*

Teck’s valuation is also stretched

Teck is currently trading at a premium to not only commodity prices, but also to its own historical average valuation as well as its peer group. At 8.4 times blended forward EBITDA, Teck’s valuation is one full standard deviation above its historical average of 7.1 times, while its EV to sales and P/BV multiples are two or higher sigma above their historical norms.

On the relative valuation side, Teck’s blended forward EV/EBITDA of 8.4 times and forward P/E of 30.7 times are well above its peer average of 7.7 times and 16.6 times, respectively.

In other words, this rich valuation is implying strong growth going forward. However, Teck is in the midst of a turnaround as it looks to cut costs and monetize its non-essential assets to improve its balance sheet. Moreover, with Fort Hills still under construction, near-term growth catalysts for Teck are virtually non-existent. Therefore, Teck’s valuation is largely unwarranted, and a bullish case cannot be justified on a fundamental level.

The post Is it Too Late to Get into Teck Resources Ltd.? appeared first on The Motley Fool Canada.

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