Where should investors go shopping for bargains in this skittish market? Look no further than the biggest retailer of them all, Wal-Mart Stores Inc. , says Odlum Brown analyst Murray Leith.
Sentiment towards the stock has been poor amid worries about performance of its U.S. stores and the fragile state of the American consumer.
That's made the stock "exceptionally cheap," given that it's one of the best-run retailers in the world, Mr. Leith contends. It's trading at only 11.5 times current year earnings and 10.5 times next year's.
"Eventually, sentiment will change as investors appreciate Wal-Mart's underlying business growth and profitability. When the valuation momentum changes, we believe the returns to shareholders will be excellent," he said in a research note today.
Wal-Mart beat profit expectations this week when it reported its second quarter, even though sales at its U.S. discount stores continue to be a concern, contracting 0.9 per cent.
While that's the ninth straight quarterly decline, Mr. Leith notes that same-store sales improved sequentially each month during the quarter, as both traffic and the average amount spent at stores improved. Furthermore, "the company continues to expand internationally and there is ample opportunity for margin expansion, as Wal-Mart has yet to roll out its 'everyday low price' strategy in many countries," he said.
He believes there are two catalysts that will boost same-store sales and sentiment towards the stock: lower gasoline prices and better U.S. employment.
Upside: Odlum Brown reiterated its "buy" rating and $60 (U.S.) price target.
ATS Automation Tooling Systems Inc. reported a disappointing fiscal first-quarter, as revenue at its Automation Systems Group fell to $126.9-million from $153.8-million in the previous three months. "The decline in revenue sequentially was surprising given significantly higher order activity at ASG over the past few quarters," commented CIBC World Markets Inc. analyst Michael Willemse, adding that operating margins also were weaker than expected.
Downside: Mr. Willemse cut his price target by $1 to $7.50.
Seaview Energy Inc.'s cash flow in the second quarter was surprisingly weak, as the company produced less-than-estimated light oil relative to natural gas liquids, said Canaccord Genuity analyst Brian Kristjansen. He reduced his cash flow forecasts going forward and downgraded his rating to "speculative buy" from "buy."
Downside: Canaccord cut its price target to $1.45 from $2.30.
A few large companies such as Sharp and GE have recently entered the solar and LED illumination business. While this increases competition for Carmanah Technologies Corp. , the company will likely benefit from additional players helping to advance the new technology while increasing the potential for new partnerships, said National Bank Financial analyst Rupert Merer.
Upside: Mr. Merer has an "outperform" rating on the stock, with a price target of 75 cents.
Allied Properties REIT has made considerable progress in its leasing activities in the first half of this year, with its occupancy rate standing at 93.7 per cent at the end of the second quarter. This should significant boost cash flows heading into 2012, and the company continues to have a debt ratio below the industry average despite several recent acquisitions, commented Dan Hincks, analyst with Odlum Brown.
Upside: Mr. Hincks reiterated his "buy" recommendation and $24.50 price target.
Darcy Keith