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Canaccord yanks National Bank off its favourites list

National Bank of Canada has fallen out of favour with Canaccord Genuity amid concerns that growth in domestic consumer loans is facing a material slowdown.

Canaccord downgraded National Bank today to a "hold" from "buy" and also took it off its "Focus List" - a handful of stocks in all sectors that are its best investing ideas.

Analyst Mario Mendonca highlighted two positives for the bank: likely further dividend hikes, and strong expense control. But he's concerned with the bank's large exposure to a meaningful slowdown in domestic loan growth, as well as the disadvantage of scale when it comes to its much smaller retail operations in Canada, which hurts margins.

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Mr. Mendonca's downgrade also reflects valuation concerns, as the stock has rallied sharply since December and is trading largely in line with the broader banking group.

Canaccord currently has no bank picks on its Focus List. But it does have "buy" ratings on two of them: Royal Bank of Canada and Toronto-Dominion Bank .

Upside: Mr. Mendonca raised his price target by $2 to $86.

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Raymond James Ltd. analyst Steve Hansen has downgraded his rating on Alliance Grain Traders Inc. ahead of expected weakness in the pulse and specialty crop provider's quarterly results. But he believes the adverse conditions facing the pulse industry - such as tighter credit that has reduced demand for Canadian exports - will dissipate in coming months. He now rates the stock as an "outperform," instead of "strong buy," and contends the current trading price is an attractive entry point given it's close to book value.

Downside: Mr. Hansen slashed his price target by $6 to $24.

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A "breakout quarter" from its Colliers International unit has prompted Raymond James Ltd. analyst Frederic Bastien to upgrade FirstService Corp. to an "outperform" from "market perform." Margins at Colliers were much stronger than expected and more than offset disappointing results from the real estate services firm's other two divisions.

"We are confident that fourth quarter 2011 marked a turning point for the division. That's because Colliers' investments in people and systems are finally yielding the division (and most notably the Americas region) significant operating leverage," he said.

Upside: Mr. Bastien raised his price target by $5 (U.S.) to $36.

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Zillow Inc. solidly beat consensus estimates in reporting fourth-quarter results, with mobile apps driving large traffic increases to the real estate hunting website, commented Canaccord Genuity analyst Michael Graham. Management also unveiled a new strategic thrust to provide multiple services for real estate professionals beyond the current focus on lead generation.

Upside: Mr. Graham raised his price target by $10 to $42 and maintained a "buy" rating.

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Investors overreacted Wednesday in pushing up shares of Cimarex Energy Co. after it released strong well results from the Permian Basin, argued Canaccord Genuity analyst John Gerdes. While initial flow rates were strong, he points out that drilling costs were up sharply.

"Further, 2012 spending/production guidance was in line with our expectation, supporting our existing view of capital productivity," he said. "In our view, investors are overreacting to the denominator of higher initial rates/recoveries and under appreciating the numerator of higher costs."

Downside: Mr. Gerdes downgraded Cimarex to "hold" and cut his price target by $1 to $84.

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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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