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Eye on Equities

Rally in oil service firms not out of gas yet: Canaccord Add to ...

Oil service firms have had an impressive run the past three months, with the Philadelphia Oil Service index up about 30 per cent compared with an 11 per cent gain for the S&P-500.

But with European debt concerns and the escalation of political tensions in Korea at the forefront of the market this week, have they finally run out of gas?

Probably not, according to Canaccord Genuity analyst John Tasdemir. December is typically a good month for oil service stocks, he notes, with gains recorded in nine of the last 10 years. That impressive track record isn't a coincidence: December is usually the month when winter weather tightens its grip and the serious oil and gas storage drawdowns begin. Of course, seasonality plays don't always pan out.

Mr. Tasdemir pointed to three stocks that investors should consider in the near term: Halliburton Co., which he notes is a good value at a 15 per cent discount to peers; Precision Drilling Corp., which may have more earnings torque over the winter due to an aggressive drilling schedule; and RPC Inc., a stock he describes as "one of the fastest-growing, best-performing small cap completion-oriented companies."

Upside: Mr. Tasdemir rates all three stocks a "buy." His price target on Halliburton is $45 (U.S.), $10 (Canadian) on Precision Drilling, and $30 (U.S.) on RPC.

Shares in AGF Management Ltd. are trading at a significant discount to other fund companies, at 5.9 times expected 2011 earnings before interest, taxes, depreciation and amortization (EBITDA), said RBC Dominion Securities Inc. analyst Geoffrey Kwan. Yet AGF is better positioned to benefit from a gradually improving macro environment and healthier equity market conditions, he said.

Upside: Mr. Kwan upgraded the stock to "outperform" from "sector perform" and hiked his 12-month target by $2 to $20.

NuVista Energy Ltd. CEO Alex Verge has resigned at the request of the board, further signalling that 2011 will be a transitional year for a company seeing a lack of production growth and definitive resource play development, said Canaccord Genuity analyst Brian Kristjansen.

Downside: Mr. Kristjansen maintained his "buy" recommendation and $12.25 target price,

Alimentation Couche-Tard Inc. is gathering strength as it awaits a U.S. economic recovery, successfully turning gasoline pump traffic into in-store sales, said CIBC World Markets Inc. analyst Perry Caicco. He raised his fiscal 2011 earnings per share estimate to $2.10 from $1.91.

Upside: Mr. Caicco hiked his price target by $2 to $29.

MKS Inc.'s latest quarterly results were ahead of expectations across the board, thanks mostly to new customer wins in its embedded systems vertical, said Versant Partners analyst Tom Liston. The board increased its dividend to a yield of 7 per cent and the company is an attractive takeover target, he said.

Upside: Mr. Liston raised his target to $13.50 from $12 and upgraded his recommendation to "buy" from "neutral."

George Weston Ltd. is enjoying strong margins due in part to productivity gains, but sales volumes are stuck in neutral, said CIBC World Markets Inc. analyst Perry Caicco. Weston is more likely to go after numerous small acquisitions than make a large one, a strategy that will reduce risk but create a company with more moving parts and more variability in results, he said.

Upside: Mr. Caicco hiked his price target by $1 to $82.

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