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eye on equities

Investors haven't been terribly enthused about Suncor Energy Inc. since its blockbuster merger with Petro-Canada two years ago, fretting over production disruptions, its ability to integrate the two companies effectively and grow from there.

Trading near $35 a year ago, shares have only recently started to gain a bit of traction but are still below $40 despite crude oil's much more aggressive march to near $100 (U.S.) a barrel.

Call it a case of a stock not getting much respect. But, according to RBC Dominion Securities Inc., its day may finally be arriving. In fact, it's RBC's favourite name in the sector for this year.

In a report titled "overlooked and unloved," RBC applauded the company's well-defined upstream growth profile, strong balance sheet and attractive relative valuation. It also likes its 87 per cent weighting to crude oil, given the supply and demand dynamics of that commodity are looking so much sweeter than natural gas.

"With the integration of Petro-Canada now in the rear-view mirror and a streamlined upstream production base with a 58 per cent oil sands weighting, Suncor is bigger and better than ever," RBC analyst Greg Pardy argued.

Another reason to like Suncor: Mr. Pardy believes there is a "reasonable likelihood" that it will raise its common share dividend some time this year.

At current levels, Suncor is relatively inexpensive, trading at a debt-adjusted cash flow multiple of 8.8 times in 2011 against an integrated peer group average of 9.1, Mr. Pardy points out. This, he expects, will improve over time. Meanwhile, Suncor is slated to receive $1.75-billion of cash during the first half of this year from Total, which will strengthen its balance sheet.

Upside: Mr. Pardy reiterated his "outperform-average risk" rating on Suncor, with a one-year price target of $48 (Canadian).

RioCan REIT should benefit from heightened U.S. interest in Canadian real estate markets thanks to its dominant and strategically located portfolio, said National Bank Financial analyst Heather Kirk. RioCan's joint venture announced this week with Tanger Factory Outlet Centers should help bring new retailers into its tenant roster, she added.

Upside: Ms. Kirk hiked her price target by $1 to $25.

The significant improvement in industry IT spending, as indicated by the latest quarterly results from bellwethers such as IBM and Intel, points to better performance ahead for Open Text Corp. , said Canaccord Genuity analyst Eyal Ofir. Open Text has been able to continually improve its margins over the last few quarters, he noted.

Upside: Mr. Ofir upgraded the stock to "buy" from "hold" and raised his price target by $5 (U.S.) to $55.

Ancestry.com should see strong subscriber growth in coming quarters thanks to the second season of NBC's reality show Who Do You Think You Are? set to premier Feb. 4, said Canaccord Genuity analyst Heath Terry. The new episodes feature a cast that should prove even more popular and introduce Ancestry's brand to an expanded audience, he said.

Upside: Mr. Terry has a $40 (U.S.) price target on the stock.

Norfolk Southern Corp. reported a disappointing fourth quarter as a result of employee hiring, shorter-haul moves and inclement weather. But the railway provided an optimistic outlook on most of its product segments, announced a surprise FedEx contract win and has new opportunities to move coal, noted RBC Dominion Securities Inc. analyst Walter Spracklin.

Upside: Mr. Spracklin raised his target price by $2 (U.S.) to $69 and suggested investors look for an entry point below $59.