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'Warts, wounds and all,' Manulife still seen as a buy

The debt rating agencies have been busy downgrading Manulife Financial Corp. this month and who could blame investors for remaining skeptical about the stock, given its devastating slide in the first eight months of this year.

But Manulife has had a bit of a rebirth this month, gaining close to $3 a share since the turn of the calendar to levels not seen since early June. Macroeconomic conditions have gone in its favour this quarter, and overall losses were less than expected last month in its latest quarterly results.

While many concerns remain, especially surrounding its struggling U.S. operations and volatile earnings, Veritas Investment Research recommends buying the stock, "warts, wounds and all."

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Analyst Ohad Lederer says the insurer's long overdue risk reduction strategy should improve sentiment and the recent stock price already reflects a healthy dose of skepticism that management can accomplish its recently unveiled five-year plan.

It cautions that underlying profitability is difficult to assess, and the U.S. business - which has been sucking up a large proportion of resources for little return - is clearly going to shrink before it grows. But sales in Canada are solid and Asia's growth appears to be back of track, with Manulife racking up $500-million of annual earnings in the high-growth region.

Mr. Lederer said that based on his assessment of Manulife's earnings prospects, its intrinsic value is $19, "subject to a relatively benign macro environment."

Hydro-Quebec has accepted two of Algonquin Power & Utilities Corp.'s proposed wind projects under the utility's latest call for offers, noted Canaccord Genuity analyst Juan Plessis. The projects won't start-up for at least a few years, but in the longer term they should add value to the company, he said.

Upside: Mr. Plessis raised his target by 50 cents to $6.

Golden Star Resources Ltd. has lowered its production guidance for this year, due in part to ore delivery problems at its Bogoso/Prestea operations in Ghana, noted CIBC World Markets Inc. analyst Cosmos Chiu. The company has also experienced an increase in power rates.

Downside: Mr. Chiu cut his price target by 50 cents to $5.50 (U.S.).

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Progress Energy Resources Corp. should benefit from Sasol's $1-billion deal for a stake in Talisman's Montney shale gas play in British Columbia, said CIBC World Markets Inc. analyst Jeremy Kaliel. Progress has a large land position in the area and the transaction "gives us confidence that Progress will be able to finance an expanded capital program and show production growth within the current gas price environment," he said.

Upside: Mr. Kaliel upgraded Progress to "sector outperformer" from "sector performer" and raised his 12- to 18-month price target by $2 to $16.

Teck Resources Ltd. is the company that should benefit the most from continued high Chinese imports of base metals and metallurgical coal, said Desjardins Securities Inc. analyst John Hughes. The most recent data showed Chinese net imports of refined copper soared 36 per cent from October, driven by increased production of Chinese semi-fabricated goods, he noted.

Upside: Mr. Hughes reiterated his "buy" recommendation and $64.25 share target.

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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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