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'Discount' valuation adds shine to North American Palladium

Honda Elements being assembled at a plant in East Liberty, Ohio. Palladium is used in vehicles' catalytic converters.


The outlook for the palladium sector is not so grim despite slowing demand for the white metal from Asia's auto industry, says Raymond James analyst Bart Jaworski.

The analyst has initiated coverage on North American Palladium Ltd., which has a mine in Northern Ontario. The stock of this palladium miner is attractive based on its "deeply discounted valuation, organic production growth, exploration upside and low political risk," he wrote.

Weaker auto demand is offset by the "looming exhaustion of Russian stockpiles (currently 14 per cent of the world supply)," while increased operating costs in South Africa make North American miners worth considering, he said.

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"Currently, 86 per cent of global palladium production comes from high political risk jurisdictions, namely Russia and South Africa. This explains why producers in safer countries usually trade at large premiums. North American Palladium is not only one of three primary palladium mines globally, but also one of the only two in North America."

Upside: The analyst has a "outperform" rating on North American Palladium with a one-year price target of $4.50 a share.


New customer growth for telecom software maker Sandvine Corp. (37 new customers this year versus 21 in 2010) "will re-ignite revenue momentum," and help close the valuation gap with its main peer Allot Communications Ltd., said TD Securities analyst Doug Taylor. Sandvine's imminent Internet traffic trends report will help focus more attention on the company, he said.

Upside: The analyst raised his rating to "action-list buy" with a target unchanged at $2.25 a share.


TD Securities analyst Sean Steuart downgraded security and specialty paper producer Fortress Paper Ltd. to "hold" after a strong rally over two months. "In the light of the share price surge, we now believe that Fortress's valuation appropriately reflects mid-term earnings and cash flow potential."

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Upside: Mr. Steuart is maintaining his 12-month target of $45 a share.


Lithium Americas Corp. said Monday that potash production from its lithium-brine project in Argentina will become part of its definitive feasibility study for the property. Harvesting potash at this project could cut costs and improve the project's economics, said Dundee Securities analyst David Talbot.

Upside: Mr. Talbot bumped his 12-month target by 30 cents (Canadian) to $3.45 a share.


Schlumberger Ltd.'s third-quarter results came in lower than consensus, but growing international revenues helped shield it from more downside, said Canaccord Genuity analyst Scott Burk. "We believe Schlumberger is one of the better oil service stocks to own in a declining oil price environment."

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Upside: Mr. Burk maintains a "hold" rating, but raised his one-year target by $5 (U.S.) to $78 a share.

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