The Skikda thermal power plant, one of SNC-Lavalin's projects in Algeria
Desjardins Securities Inc. has a new "top pick" for its short list of stocks that it believes will significantly outperform their peers over the next 12 months.
And not so surprisingly, it's a company that has taken a beating during the latest market carnage: SNC-Lavalin Group Inc. .
After hovering around the $48 to $51 range in August, shares dipped below $40 on Tuesday before rallying in the last two trading sessions. Even with the latest up-leg, Desjardins analyst Pierre Lacroix still sees considerable upside from here, with a price target of $64.
While the intensifying debt crisis in Europe and fears of a double-dip recession have no doubt weighed on the stock, Mr. Lacroix believes the price action suggests shares are also tracking recent pressure on commodity prices, most notably oil and copper.
A good chunk of the company's operating income comes from chemical and petroleum, and mining and metallurgy, divisions. But Mr. Lacroix points out that its diversification into social infrastructure has helped the company in times of weak commodity prices. "A material decline in commodity-related earnings does not justify the current share price," he said.
He notes that Canadian infrastructure giants such as TransCanada and Enbridge remain resilient in the current environment - an encouraging sign for that side of the business for SNC.
"We would remind investors that history has shown time and again that market uncertainty presents one of the best opportunities to jump into SNC at a decent price, especially given the company's flourishing backlog and the wealth of prospective opportunities. In light of the recent selloff, SNC offers investors a distinctly favourable risk/reward proposition and a company with a solid track record and high-quality earnings."
He upgraded the stock from his previous "buy" rating.
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Canaccord Genuity has trimmed its copper price forecasts through 2012 to reflect recent market weakness, but is still recommending investors buy Copper Mountain Mining Corp. . "Panic-driven risk aversion in the global markets has, in our opinion, excessively impacted Copper Mountain's price," said analyst Wendell Zerb. He's still upbeat about demand prospects for the metal from China and much of the developing world, and sees the potential for very large deficits toward the middle of the decade.
Downside: Mr. Zerb cut his price target to $6.90 from $8.70 and reiterated his "speculative buy" rating.
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Environmental opposition to Northern Dynasty Minerals Ltd.'s Pebble gold-copper-molybdenum project in Alaska is intensifying at a time when economic growth prospects are weakening and equity markets are tanking, noted Canaccord's Mr. Zerb. "With major project milestones expected to be delivered in 2012 and few identified catalysts in the short term, we expect low project visibility to keep NDM on the edge of investors' radar screens until 2012," he said.
Downside: Mr. Zerb slashed his price target to $11.20 from $18.10 and maintained a "speculative buy" rating.
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Shaw Communications Inc. will likely report significant wireless writedowns when it releases fourth-quarter results on Oct. 20, said Canaccord Genuity analyst Dvai Ghose. He sees little reason for investors to buy the stock right now amid continued market share loss to Telus, the company's recent abandonment of its wireless strategy in favour of Wi-Fi, and its premium valuation against peers based on enterprise value to earnings.
Downside: Mr. Ghose maintained a "hold" rating and $21 price target.
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CIBC World Markets Inc. analyst Paul Holden has cut his earnings estimates for CI Financial Corp.'s third-quarter and is advising investors to be braced for a wave of negative income revisions and price target reductions from other analysts ahead of its quarterly results in early November. His actions follow CI reporting this week that its average assets under management in the third quarter was $70.8-billion, below CIBC forecasts.
Downside: Mr. Holden cut his price target to $19.50 from $22 while maintaining a "sector underperform" rating.
Darcy Keith