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Weyerhaeuser shares ripe for value investors: analyst

A Weyerhaeuser mill in Port Alberni, B.C.

Weyerhaeuser Co. shares have been pummelled amid renewed concerns over the global economy, but Odlum Brown analyst Cory O'Krainetz believes investors are being short-sighted.

"Most pundits agree that it is just a matter of time before market conditions for wood products in North America improve, but there is reluctance among many investors to buy timber stocks because of the risk of being too early. We think that is a mistake," Mr. O'Krainetz said in a research note today.

"Stocks generally move well in advance of an improvement in the underlying business fundamentals and often surprise on the upside when investor sentiment becomes just a little bit less pessimistic."

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A year ago, Weyerhaeuser was trading close to today's levels, but then rallied more than 57 per cent in just four months. Investors, he suggests, are now getting a second chance to buy the stock at a similarly low price. Its valuation already reflects a difficult operating environment, and while the economic outlook in China is worrisome, positive supply and demand dynamics in North America will more than offset potential weakness in China, he contends.

"WY is our pick within the North American peer group because it has the highest quality timberlands, it is ideally positioned to benefit from the mountain pine beetle epidemic in Western Canada, and it is not unduly exposed to China. The company also receives favourable tax treatment as a U.S. REIT and offers investors a 3.7 per cent dividend yield," he said.

Upside: Mr. O'Krainetz initiated coverage with a "buy" rating and $22.50 target price.

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Torstar Corp. should report a "mild" third quarter when it releases results on Nov. 2, with earnings before interest, taxes, depreciation and amortization to be down 10 per cent from a year earlier, predicts Canaccord Genuity analyst Aravinda Galappatthige. He also expects the publisher's pension funding requirements to remain high, given recent equity market returns and low interest rates.

Upside: Mr. Galappatthige maintained a "buy" rating but cut his price target by $2.25 to $12.75, citing the recent contraction in print media valuations.

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CIBC World Markets Inc. analyst Ian Macqueen has initiated coverage of Coastal Energy Co. with a "sector outperformer" rating, impressed with the company's oil holdings. The company discovered two oil fields in the Gulf of Thailand this year that are estimated to contain 95 million barrels of recoverable oil and should enable the company to triple production to 22,000 barrels per day by year end, he said.

Upside: Mr. Macqueen set a 12- to 18-month price target of $19.50.

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Despite near-term worries about the demand for metallurgical coal, Jennings Capital Inc. analyst Russell Stanley believes Cline Mining Corp. "is substantially undervalued at current levels." While tempering his price outlook on the stock, he is encouraged by the company reiterating its production guidance for fiscal 2011 and 2012 and rates it as a "speculative buy."

Upside: Mr. Stanley cut his 12-month price target by $1.50 to $4.

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Raymond James Ltd. analyst Steve Hansen believes CanWel Building Materials Group Ltd. offers "compelling value at current levels," even though he expects the company to soon cut its dividend. He is now assuming a more conservative outlook on 2012 housing activity given recent macroeconomic uncertainty, but continues to admire CanWel's market leading position and track record of generating healthy free cash flow through all points the economic cycle.

Upside: Mr. Hansen cut his price target by $1 to $3 and upgraded the stock to "strong buy."

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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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