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Sears Canada only for the bravest of investors

A Sears Canada store at Upper Canada Mall in Newmarket, Ont. The retailer plans to give a soon-to-be-named advertising agency the mandate to consider replacing Sears' blue and white logo with a less conservative look.

Peter Power/The Globe and Mail/Peter Power/The Globe and Mail

These are some of the key analyst actions on Bay Street today

Sales trends continue to deteriorate at Sears Canada Inc., just as the retailer is about to be bombarded with new competition from Target and other expanding retailers.

For an investor, that means the stock comes with a flashing warning sign. And that's being echoed by one of the few analysts who follows the stock -- Keith Howlett at Desjardins Securities -- who doesn't sound too convinced the company's turnaround will turn out well.

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Sears has already announced plans to close three Sears department stores next month after selling off leases to raise some cash.

"The highest and best use of other Sears locations may also potentially be realized in the hands of operators of other retail concepts," Mr. Howlett said in a research note today.

All is not bad, he points out. Sears has been making progress in its major appliance and mattress categories, which it had made a priority. And its balance sheet is in good shape, ending the second quarter with over $3 in cash per share and essentially no debt.

But headwinds are strong. Overall consumer demand is tepid, and then there's the concern about others scooping up market share.

"Progress is being made by management on a number of fronts, but competition will intensify in the fourth quarter of 2012 when Wal-Mart opens 39 stores in former Zellers locations and in 2013 when Target opens in 125 former Zellers locations," he noted.

The company's latest results reinforce these concerns, with the company reporting a loss of 10 cents a share in its latest quarter, compared with breakeven a year earlier and Mr. Howlett's forecast for a loss of 6 cents. Same-store sales fell 7.1 per cent.

The stock is trading under book value, however, which may make it bait for courageous value investors.

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For now, Mr. Howlett is sticking to his oft-repeated words of caution: "These shares are only suitable for risk-tolerant, patient investors."

Upside: Mr. Howlett maintained a "hold" rating and $14 price target.


Glacier Media Inc.

Glacier Media reported second-quarter earnings below expectations this week, as a weak national advertising market and the pains associated with a transition to a more digital strategy took their toll. But Raymond James analyst Kenric S. Tyghe sees a payoff coming from its strategies to offer enhanced, better targeted content. "These initiatives, combined with investments in the acquired community media assets to increase competitiveness and sales effectiveness, will, in our opinion, improve the margin profile through our 2013 forecast window," he said.

Upside: Mr. Tyghe maintained an outperform rating but cut his price target by 50 cents to $2.50.

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Labrador Iron Mines Holdings Ltd.

High costs and falling commodity prices have squeezed margins at Labrador Iron Mines Holdings, with its latest quarterly earnings falling well short of Street expectations. Desjardins Securities analyst Jackie Przybylowski downgraded the stock to "buy" from a "top pick," commenting that he expects a big portion of its capital spending to be deferred into the next two years.

Downside: Desjardins also cut its price target by $1.50 to $5.50; Canaccord Genuity decreased its target by $1.50 to $6 and maintained a "buy" rating.


Deere & Co.

Manufacturing hiccups led to Deere & Company missing Street estimates for its fiscal third quarter, but it's the U.S. drought that has RBC Dominion Securities analyst Seth Weber worried. While Deere thinks there will be minimal impact on fiscal 2012, Mr. Weber thinks there's greater uncertainty for next year, given the potential impact on farmers' large equipment purchases.

Upside: Mr. Weber cut his price target by $6 to $86 (U.S.) and reiterated a "sector perform-average risk" rating.


Parex Resources Inc.

UBS has upgraded Parex Resources Inc. to "buy" from "neutral" due to recent share price depreciation that has made the stock more attractive. The oil and gas company, in releasing earnings this week, reiterated its target for end-of-year production. The focus for the second half of the year, UBS said, now turns to hunting for reserves. Life of reserves at Parex is only about three years, compared to nine for peers.

Upside: UBS maintained a $6 price target.

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