Five stocks that are worth second look

Don’t be fooled by all the headlines heralding this year’s rally on the stock markets.

Although Toronto’s main equity index has jumped 25 per cent over the past year, many stocks have lagged. So if your portfolio hasn’t matched the market’s juicy gains, you’re not alone.

In fact, if you hold shares of companies such as Westport Innovations, Liquor Stores N.A., Reitmans, Danier Leather or Lululemon, you’re likely underwater.

Does that make these stocks attractive enough to buy? Not necessarily.

Since stock prices reflect future expectations — not past performance — many of these pooches may be stuck in the doghouse for awhile.

On the flip side, some underperformers may be worth a second look, since they don’t typically trade at high earnings multiples and are thus less vulnerable if there’s a stock market correction ahead.

With those caveats, here’s a quick look at five stocks that have trailed Toronto’s benchmark S&P/TSX Composite Index over the past year, but are recommended as “buys” by most analysts: Agrium Inc. (TSX:AGU) — Shares of the big Calgarybased fertilizer producer are up less than one per cent over the past 12 months, trailing the overall market’s gain by more than 21 per cent.

Yet many analysts remain positive on Agrium’s stock, which offers a 3.3 per cent dividend yield and trades for less than 12 times next year’s consensus earnings estimate of over $8 a share. Cervus Equipment (TSX:CVL) — Shares of this Calgarybased industrial, agricultural and industrial equipment dealer are up just seven per cent over the past year, trailing the overall TSX by a wide margin.

Rival heavy equipment sellers such as Wajax and Strongco have also seen their shares struggle to gain altitude, reflecting reduced capital spending in sectors such as mining.

But Cervus’ recent agreement to acquire a network of 12 Peterbilt truck dealerships in Ontario for $25.5 million — which is expected to close later this month — should boost earnings substantially this year and next, according to Scotiabank analyst Christine Healy.

She recently hiked her 12-month target price on the shares by $1 each to $26.50, based on revised earnings projections of $1.63 a share this year and $2.07 a share for 2015. Norbord Inc. — Shares of this Toronto-based producer of building products such as oriented strand board (OSB) and medium-density fibreboard (MFB) peaked at over $34 apiece last December.

But it has been mostly downhill since, with Norbord’s stock currently trading at $27.25, down 17 per cent over the past 12 months.

Extreme winter weather dampened the pace of new home building, causing a sell-off in many forest products stocks during the first half, including West Fraser, Interfor and Canfor.

Weaker OSB prices also hurt Norbord’s first-quarter results. But analysts have remained upbeat on Norbord’s growth prospects and expect better earnings in 2015 as the U.S. housing sector continues to rebound.

The consensus estimate calls for earnings to exceed $2.20 a share next year, generating an average 12-month target price for the stock of more than $30. At the current price, Norbord’s shares offer a rich dividend yield of 8.8 per cent. KP Tissue (TSX:KPT) — This lowprofile Mississauga, Ont.-based firm holds a 16.6-per-cent equity interest in Kruger Products, Canada’s top manufacturer of consumer tissue products including Purex, Scotties and White Swan.

KP Tissue’s shares have shed $1.20 apiece or seven per cent over the past year, and the company posted a first-quarter loss, due to restructuring costs and other nonoperating charges.

But some analysts see brighter days ahead in the wake of Kruger’s recent purchase of Metro Paper.

Scotiabank estimates KP will generate net earnings of $1.15 a share next year, up from 61 cents this year, and it carries a 12-month target price of $19, about 20 per cent above the current price.

The shares carry a dividend yield of 4.5 per cent. Sirius XM Holdings (TSX:XSR) — The Toronto-based satellite radio broadcaster has seen its shares flatline after a big run-up in 2012 and 2013.

The shares closed Monday at $7.11 apiece on the TSX, virtually unchanged over the past 12 months, and a third below the 52-week high of $10.50.

But most analysts remain positive on the stock. CIBC analyst Tony Rizzi rates the shares “sector outperformer” with a 12-month target price of $9 apiece, 26 per cent above Monday’s close.

Canaccord Genuity also rates the shares a “buy” with a slightly lower 12-month target price of $8.50.

At the current price, the stock carries a generous dividend yield of 5.9 per cent.

Other shares that have lagged the TSX’s gains over the past year and that may offer some upside include Empire Co., Carfinco, George Weston, Entrec and Cenovus Energy, to name a few.