Insiders bet West Fraser Timber stock will close the gap

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West Fraser Timber (Mostly Sunny; WFT) gapped down 2.23% on February 13th after reporting Q4 results after the close on the 12th. Although it traded as low as $67 on the day, it managed to close towards the high end its range at $72.78. However, the stock has continued to slide in the days since. The question is: will it be able to gather some steam and make a rebound?

The stock, which is a member of the INK Canadian Insider Index, has three things going its favour:

The stock, which is a member of the INK Canadian Insider Index, has three things going its favour:

  1. It is close to becoming oversold by traditional technical measures. On Wednesday, it closed at $68.70 with the lower bound of its Bollinger band at $68.36. Its RSI remained above the key 30 level, at 35.94. So it is not there yet, but it is close.
  2. Valuations remain attractive. WFT's price to cash flow per share over the trailing twelve months is 4.4, compared to an average of  9.5 for the broad Canadian market. Much of the bad news has already been priced in.
  3. Insiders have continued to buy on the price weakness. Since Q4 results were announced, insiders have spent $306,098 picking up shares in the public market.

While it is not a foregone conclusion that the stock will recover, on balance we would expect it to do so. We note that the stock bottomed in October, about two months before the rest of the market. Moreover, a seasonally strong period for the stock lies ahead. On average, WFT stock has traditionally seen gains from October through the end of March according to EquityClock.com, To the extent that history is a useful measure, both time and insiders appear to be on the stock's side.

INK Edge outlook ranking categories (Sunny, Mostly Sunny, Mixed, Cloudy, Rainy) are designed to identify groups of stocks that have the potential to out- or under-perform the market. However, any individual stock could surprise on the up or downside. As such, outlook categories are not meant to be stock-specific recommendations. For background on our INK Edge outlook, please visit our FAQ #5 at INKResearch.com.

This post first appeared on INKResearch.com.

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