Manitoba Telecom Services Inc. has had a tough time generating a lot of investor excitement in the past year despite offering a healthy 6 per cent dividend yield. Shares bottomed out just below $25 in late summer before recovering to the $28 to $30 range this fall and have had difficulty making further headway since.
While competitors Telus, BCE and Rogers tend to grab more attention, analysts at TD Newcrest believe it's MTS that actually offers the best risk-reward in the highly competitive telco sector.
"When we think about the key risks that we see for Canadian telecom stocks over the next year, we believe that MTS is less vulnerable than its peers in virtually every category," analysts Vince Valentini and Eli Papakirykos said in a note.
It may seem strange to hear analysts base a bullish view on risk avoidance rather than things such as growth or upside potential. But TD Newcrest believes 2011 will be a much tougher year for the sector following the strong returns seen over the past two years for everyone except MTS.
MTS is currently trading at 4.8 times estimated 2011 earnings before interest, taxes, depreciation and amortization (EBITDA), below the average of its North American peers, note the TD analysts. A low enterprise value to EBITDA ratio and the robust dividend limits downside risks, and the analysts believe MTS's Allstream unit will benefit from the segment returning to positive EBITDA growth in 2011 for the first time in seven years.
Upside: Mr. Valentini and Mr. Papakirykos upgraded MTS shares to "action list buy" from "buy" and raised their 12-month target price by $3 to $36.
Air Canada's stock has plunged about 25 per cent over the last couple of weeks, making for a "great buying opportunity," argued Canaccord Genuity analyst David Tyerman. Mr. Tyerman predicts the airline will post a profit of 75 cents per share in 2012 as it benefits from a cyclical recovery in the industry, a strong Canadian dollar and labour negotiations this year that could produce a net positive outcome.
Upside: Mr. Tyerman maintained a "buy" rating and $9.25 price target.
Short-term trade investors should buy shares in Canadian Oil Sands Ltd. ahead of its fourth-quarter results on Thursday, as it may announce a first-quarter dividend 25 to 55 per cent higher than the 20 cents a share the company had indicated, said Canaccord Genuity analyst Phil Skolnick. The 20-cent dividend forecast was based on $80 (U.S.) per barrel crude, but year-to-date prices suggest that was too conservative, he said.
Upside: Mr. Skolnick reiterated his "hold" rating and $28 (Canadian) price target, commenting that in the longer term investors will see more attractive yield products elsewhere.
NovaGold Resources Inc. is expected to release a revised feasibility study for its Donlin Creek project and a pre-feasibility study for its Galore Creek project by mid-2011. This should help unlock value in the company as project economics become more clear and financing options are explored, said RBC Dominion Securities Inc. analyst Stephen Walker.
Upside: Mr. Walker upgraded the stock to "sector perform" from "underperform" and hiked his price target by $7 to $16.
Loblaw Cos. Ltd.'s valuation has sunk to near historical lows even though the grocer has significant margin upside over the next two years and food inflation is poised to return this quarter, said TD Newcrest analyst Michael Van Aelst. He predicts the company will post 10 per cent EBITDA growth when it reports its fourth-quarter on Feb. 24.
Upside: TD Newcrest upgraded Loblaw to its "action list buy" and maintained its $53 price target.