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Fertilizer stocks seen as a hot sector for 2011

The drama over the proposed foreign takeover of Potash Corp. may be over, but that doesn't mean boring days lie ahead for investors in the agriculture and fertilizer sector.

Grain supplies are tight and the current harvest season is unlikely to meet global demand, further heightening the need for fertilizer. And there's no reason to believe the world is going on a collective diet any time soon to ease food consumption.

Mosaic Co. has already reported better-than-expected second-quarter fiscal year 2011 results, thanks to robust phosphate and potash markets. Many analysts are also upbeat on Potash Corp. of Saskatchewan Inc. and Agrium Inc.

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Canaccord Genuity analyst Keith Carpenter today hiked his share price targets on all three stocks, predicting that tight grain supplies will make headlines in the first half of 2011.

"We believe that the southern hemisphere will be unable to alleviate the problem with the current harvest season and that it will be up to the northern hemisphere to grow a strong crop - in particular, an increased corn planting to ease a very tight situation," Mr. Carpenter wrote.

"Due to our positive view on the grain market, the tight phosphate and potash markets, and what we believe to be the very early signs of restocking of inventories by distributors, we believe 2011 will be a solid year for the fertilizer producers," he added.

His most aggressive price target hike went to Mosaic, which he expects will benefit from higher potash and phosphate margins this year and further forays into international markets.

Upside: Mr. Carpenter raised his price target for Mosaic by $14 (U.S.) to $96, while his target for Potash Corp. rose by $10 to $185 and Agrium by $3 to $108.

Yahoo Inc. has little chance to overcome the secular headwinds it faces despite progress on reducing costs and rationalizing its operating structure, said Canaccord Genuity analyst Heath Terry. The company is losing share across critical segments and engagement on many of its properties continues to decline, he added.

Downside: Mr. Terry initiated coverage with a $16 (U.S.) price target and a "hold" rating.

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Related: Yahoo to shut down old product lines

Related: Yahoo lays off 600 workers

General Motors Co. touched a new high of $38.30 (U.S.) on Wednesday, but RBC Dominion Securities Inc. sees even further gains to come. Earnings and cash flow are set to rise thanks to a rebound in North American vehicle demand, which is still in the early stages, and the auto maker will benefit from a net cash balance sheet, reduced cost structure and improved pension and labour position, it said.

Upside: Analysts Seth Weber and Steve Arthur initiated coverage with a $42 price target and "outperform" rating.

Related: GM: Going places

Glentel Inc. raised its quarterly dividend by 51 per cent, more than TD Newcrest analyst Eli Papakirykos had been expecting. Mr. Papakirykos said the action signals that Glentel's growth prospects continue to be quite strong and he forecast that additional significant dividend hikes are looming.

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Upside: Mr. Papakirykos hiked his 12-month price target by $3 to $29, resulting in an "arguably inexpensive" earnings-per-share multiple of 11 times for 2011.

Related: Glentel boosts quarterly dividend

Noranda Aluminum Holding Corp. will benefit from an improving aluminum market, given that the company has eliminated its financial hedges and is net long on both alumina and bauxite, which it sells to third parties, said UBS analyst Brian MacArthur. He raised his realized aluminum price forecast and hiked his 2011 earnings per share estimate to $1.54 from $1.44.

Upside: Mr. MacArthur increased his 12-month price target by $2.50 (U.S.) to $16.

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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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