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Canaccord downgrades Brookfield Asset Management

Brookfield Asset Management CEO Bruce Flatt listens to other speakers at the company’s annual general meeting last May.

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Market Blog's roundup of some of today's key analyst actions

Canaccord Genuity has downgraded Brookfield Asset Management Inc. to a "hold" rating after the company last week reiterated that it won't succumb to pressure to sell its stake in mall operator General Growth Properties Inc.

At an investor's day presentation on Thursday, Brookfield outlined a 10-year plan which included a very bullish outlook for growth in management fees, noted Canaccord analyst Mark Rothschild.

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But he's concerned about the consequences of CEO Bruce Flatt rebuffing the demands of Pershing Square Capital Management that BAM form a special committee to consider the sale of GGP. The hedge fund run by William Ackman owns about 10 per cent of GGP, and Brookfield close to 40 per cent. In a regulatory filing in August, Mr. Ackman suggested that David Simon, CEO of the No. 1 U.S. mall owner Simon Property Group Inc., may want to buy GGP at a significant premium.

"As fiduciaries of all shareholders, Brookfield should request that an independent committee is formed to consider what value can be realized through a sale," Mr. Rothschild said. "By merely saying 'we know what is best for GGP,' management of BAM is not allowing minority shareholders to consider what value can be realized through a sale of GGP, and leaves itself open to criticism.

"While longer term it probably is better not to sell the company, BAM's interest are not completely aligned with other shareholders since 1) it will generate fees on its GGP shares through the newly created Brookfield Property Partners, and 2) Brookfield generally takes a longer-term view than others," Mr. Rothschild said.

The bottom line? "We believe that BAM's stance could cause more investors to question what the cost is of partnering with BAM and being minority shareholders in its subsidiary companies. This could ultimately lead to a lower valuation for Brookfield and its affiliated companies," he said.

Downside: Mr. Rothschild, who previously rated BAM as a "buy," maintained a $37.30 (U.S.) price target.

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RBC Dominion Securities has raised its price targets on several paper and forest products stocks, citing more confidence in a recovering U.S. housing sector. The bank increased its 2013 forecast for U.S. housing starts by 12 per cent to 922,000.

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"We believe the U.S. housing market has begun a strong recovery, giving investors the opportunity to profit in a number of sub-sectors, as U.S. residential real estate activity returns to sustainable levels," analyst Paul C. Quinn said in a report.

He recommends investors target companies that produce such construction materials as oriented stand board, a sector where high operating rates will keep prices and profits at high levels throughout 2013. He also prefers lumber companies over the larger integrated firms that have exposure to the weaker pulp markets.

He upgraded Acadian Timber Corp., Louisiana-Pacific Corp. and Weyerhaeuser Co. to "outperform" ratings from "sector perform."

Price target hikes were as follows:

Acadian Timber: to $13 from $11

Ainsworth Lumber Co.: to $4 from $3

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Canfor Corp.: to $13 from $11

Conifex Timber Inc.: to $12 from $10

International Forest Products Ltd.: to $7 from $6

Louisiana-Pacific: to $16 from $13

Norbord Inc.: to $22 from $20

West Fraser Timber Co.: to $60 from $52

Weyerhaeuser: to $30 from $23

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Theratechnologies Inc.'s latest third-quarter results show that recent restructuring efforts are paying off, but the strategic direction of the company is now clouded given the resignation of president and CEO John Huss, said Canaccord Genuity analyst Neil Maruoka. "We are throwing in the towel on our call for the time being, citing a lack of near-term catalysts and increase uncertainty," he said.

Downside: Mr. Maruoka downgraded the stock to "hold" from "buy" and cut his price target all the way to 60 cents from $4.

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Dundee Securities analyst Grant Daunheimer has added Whitecap Resources Inc. to its short list of top picks in the commodity sector, praising the company's "highly experienced" management team and competent technical staff. Mr. Daunheimer beliees the stock is trading at an attractive valuations, with with its strong balance sheet, he believes the company could announce a dividend in the short to medium term.

"We believe Whitecap should be a core holding in any energy portfolio whose desire it to make money," said Mr. Daunheimer. "A diverse and oil-weighted asset base is poised to deliver material and sustainable growth over the short, medium and long term in our opinion."

Upside: Mr. Daunheimer has a price target of $11.50.

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Expecting global mining expenditures to dwindle next year, Desjardins Securities analyst Benoit Poirier trimmed his earnings forecasts on heavy machinery equipment supplier Finning International Inc. Spending plans for the top 25 mining companies next year should decline 8 per cent next year, after rising 14 per cent in 2012, he said.

Upside: Mr. Poirier cut his price target by $2 to $35 and reiterated a "buy" rating.

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For more analyst actions, breaking investing news and analysis, follow Darcy Keith on Twitter at #eyeonequities

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About the Author
Investment Editor

Darcy Keith is The Globe and Mail's Investment Editor. He has been a business journalist since 1992 and joined the Report on Business in 2010 from Yahoo! Canada, where he was the senior editor of finance. More

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