Canadian Equity Research
THEME
Naturally "normal"
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Preferred sectors: Upon contemplating a movement from today’s market to
that of a “normalized” earnings scenario in 2012, we have some clear sector
preferences within the coverage universe of the Canadian-based research
team. Our most preferred areas for sector exposure include: base materials,
life insurance, media and selected consumer discretionary sub-sectors. The
least preferred areas of exposure include: asset managers, pipelines, utilities,
and timberlands.
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Becoming normal? In this report we examined stabilized margins in three
years, considering capacity and demand changes, as well as pricing issues.
With the economy showing signs of life, and a sense of normalcy returning
to the credit markets, we believe investors are rightly asking which stocks
have run too far and which ones still present value. As we discover and
detail, the likelihood of a recovery is not consistent within sectors, which we
believe creates an opportunity.
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Looking ahead: In tackling this issue, the intent of this report is not to divine
whether the market's recent upward move is just another bear market rally
or the start of a new secular bull market. Our Canadian equity research
analysts detail a bottom-up approach to quantifying the normalized profit
margins and earnings power for their sectors and major stocks three years
hence as the economy moves closer to trend growth. While we recognize
that the recovery may not follow historical patterns and that some industries
may not achieve true “normalized” earnings power within three years, we
believe that using a consistent timeframe will help investors evaluate the
investment opportunities across sectors.
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Stock specifics: Looking ahead to “normalized” earnings in 2012, we have
a number of preferred stocks for exposure, including: Manulife (MFC) in the
life insurance sector; Suncor Energy (SU) within the energy complex; TD
Bank (TD) among the banks; First Quantum (FM) in the base metals stocks;
Agnico-Eagle (AEM) in the precious metals space; Viterra (VT) is preferred
in the consumer staples; we go to RONA (RON) for consumer discretionary;
TransAlta (TA) from the power producers; Brookfield Asset Management
(BAM) in the diversified financials; Rogers Communications (RCIb) from the
telecoms; Corus Entertainment (CJRb) in the media space; Fortis (FTS) for
the utilities; TransCanada (TRP) in among the pipelines; and, Sino-Forest
(TRE) for timberland exposure.

Table of contents
Executive summary 3
Canada overview 4
Consumer: Staples/Discretionary 7
Consumer Staples 7
Consumer Discretionary 8
Diversified financials 9
Normalized value? 9
Valuation 10
Energy infrastructure 12
Power 12
Pipelines 15
Utilities 17
Stock opportunities 18
Financial Services 19
Sector Themes 19
Canadian Banks 19
Canadian Lifecos 20
Canadian Asset Managers 21
Mining 22
Basic metals: valuing mid-cycle levels 22
Mining Equities Not Pricing Strong Recovery: Most Positive on FM, HBM, LUN 23
Copper still best positioned; Equities discounting $2.00/lb 24
Precious Metals 25
Sector Commentary 25
Sector Assumptions 25
Stock Opportunities 26
Oil and gas 27
Risk & Opportunity Within the Cdn Large Cap Oils 27
Stock selection 30
Media/Consumer & Telecom 31
Specific Stocks 32
Media and Consumer 32
Telecom 33
Timberlands 34
Stock selection 36