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A bullish view on Potash Corp.; Yellow Media seen oversold

Given upward momentum in the price of the commodity it sells, CIBC World Markets Inc. analyst Jacob Bout believes Potash Corp. shares could soon be flirting with three-year highs.

Price increases have already pushed through in the U.S. and Brazil - at $560 per tonne and $520, respectively. India is next up in negotiations between producers and their customers.

Meanwhile, the demand picture for fertilizer is looking up in the U.S., where the Department of Agriculture last month predicted U.S. corn acreage will expand this year as higher demand lowers grain inventories.

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Potash is pressing on with its expansion plans to meet the growing global consumption. Construction is ongoing at its Cory, Allan and New Brunswick sites, which should raise potash capacity from 11.3 million tonnes in 2011 to as much as 13 million tonnes next year and 17.1 million in 2015, Mr. Bout notes.

He adjusted his fully diluted earnings per share forecast for 2011 to $3.48 from $3.21, while maintaining his 2012 estimate at $3.93.

Upside: Mr. Bout raised his price target by $5 (U.S.) to $65 - a level at which it hasn't traded at since the summer of 2008.

Yellow Media Inc. stock is looking oversold and the selloff in recent days has "been driven by nothing of substance," said National Bank Financial analyst Adam Shine. Yellow Media announced nearly three weeks ago that is was selling the automotive assets of Trader Corp. and its roughly 30 per cent stake in for $745-million. Some analysts applauded the deal, contending it will delever the balance sheet and allow the company to focus on its core directories unit. But the stock has been suffering and has seen renewed selling pressure over the last several days.

Upside: Mr. Shine affirmed his $5.70 price target.

Related: Yellow Pages sheds Auto Trader assets

Chip and component companies may be "on the verge of a negative structural shift in their margin structure as the market becomes saturated with excess capacity and as market share wars develop," said Canaccord Genuity. Analyst Jonathan Dorsheimer sees this posing risks to SemiLEDs Corp. , where management during a road show this week warned of pricing pressures, low utilization rates and an inventory build.

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Downside: Mr. Dorsheimer downgraded SemiLEDs to "hold" and cut his price target to $11.

Real estate consulting firm Altus Group Ltd. cut its dividend in half while announcing the acquisition of financial modelling software company Realm Solutions/ARGUS, for $130-million (U.S.). It will be funded with lines of credit and debentures, increasing Altus's leverage and raising the risk of investing in the company's shares, said CIBC World Markets Inc. analyst Alex Avery.

Downside: Mr. Avery downgraded Altus to "sector performer" and slashed his price target by $5 to $10.50.

Shaw Communications Inc. reported second-quarter results that were slightly below expectations, as its cable business continued to show signs of weakness. While reiterating its financial guidance, Shaw warned that the intense competitive environment means an increased level of risk to the company's forecasts, noted Desjardins Securities Inc. analyst Maher Yaghi.

Upside: Mr. Yaghi rates the stock as a "hold" with a $22.50 price target.

Churchill Corp.'s industrial services segment was awarded $165-million of new contracts in the first quarter. Canaccord Genuity analyst Yuri Lynk said this "clearly demonstrates the revenue synergy potential" arising from its recent Seacliff Construction Corp. acquisition. "With a $1.6-billion backlog, visibility is excellent and management sounded confident that further awards were imminent," he said.

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Upside: Mr. Lynk rates the stock as a "buy" with a price target of $27.

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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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