By Richard Young of Intelligence Report for InvestorPlace
Canadian investments are coming into favor as the specter of inflation rears its head and the fate of a U.S. recovery is anything but certain. Canada's financial system is stable, rich with natural resources and can keep plugging along even if consumers don't open up their wallets again anytime soon.
Canada investments could be big next year for a few reasons:
First is the financial angle. Canada's banks hold their residential mortgages. They do not sell them or repackage them for securitization. That has allowed the nation to avoid the major damage done to U.S. banks.
Also, Canada is resource rich but politically stable -- a rare combination right now. For instance, 33 million Canadians produce nearly as much GDP every year as 142 million Russians -- but the Heritage Foundation's Index of Economic Freedom lists Canada as No. 7. By comparison, Russia ranked 143rd.
And if by chance the U.S. pulls out of its tailspin, Canada will share in that success. After all, it is the United States' top import and export partner. Oil sands and natural gas from Canada will always find a market in the United States. But since Canada's resource export success isn't tied to the U.S. -- last year, Canada geared up its exports across the Pacific to resource-hungry China and Singapore -- that means America's recovery is a "nice to have" and not a "must have" for Canada to succeed next year.
So where can you put your cash to share in the Canada boom? Here are seven investments to consider:
CANADIAN NATIONAL RAILWAY
I have recommended
Canadian National Railway
as one of my top 10 overall investments for three of the past four months. My price charts show that the stock is nearing new highs, with more room to run. In July, the board announced the repurchase of 2 million more shares as part of the company's ongoing 15-million-share repurchase program. CNI's second-quarter earnings report saw double-digit growth in its coal, auto, metal and minerals and intermodal freight traffic. As Canada continues to power through the economic downturn, rail stocks moving commodities will continue to fare well.
CANADIAN PACIFIC RAILWAY
Another great Canada rail stock is
Canadian Pacific Railway
. In this year's second quarter, Canadian Pacific moved 22.4% more freight than it did in the second quarter of last year. CP moved the freight for 9.7% less per unit, but the volume more than offset the lowered pricing. CP's excellent performance in the second quarter was powered by 93.7% growth in the amount of sulfur and fertilizers it moved during the quarter compared with last year. Recent resistance near $60 is the last stopping point before prerecession levels near $70.
BANK OF NOVA SCOTIA
I am impressed with the
Bank of Nova Scotia
. Known as Scotiabank, BNS recently purchased the Colombian operations of the
Royal Bank of Scotland
, expanding its considerable presence in South America. Prudent management at BNS has been good for shareholders, while the reckless risk-taking at RBS had predictable results. Scotiabank has outperformed the market handily, including a 4% gain year-to-date compared with a slide of about 4% for the broader market. Top it off with a 3.8% dividend yield, and you have yourself a good low-risk buy.
ROYAL BANK OF CANADA
Canada's 2010 budget promises the lowest corporate tax rate in the G7 by 2012. The current rate of 22.12% will be reduced to 15%, making Canada much more competitive. Look for a flood of American companies to cross the border, along with their capital investments, to take advantage of the lower tax rates. That means big business for the
Royal Bank of Canada
, the largest Canadian Bank. RY stock is under $50 as of this writing, making it a great value buy near the bottom of its 52-week range.
TORONTO DOMINION BANK TD
Another strong Canada financial stock is
Toronto Dominion Bank
. TD Bank, as it is known, is a leader in personal and commercial banking in Canada and the U.S., wealth management through its TD Waterhouse brokerage services, insurance and wholesale banking. TD has tallied nearly 10% gains year to date and continues to push higher. Top that off with a 3.4% dividend yield at current valuations paid all the way back to 1857 and you can understand why this is a great bedrock investment.
CANADIAN DOLLAR TRUST
As the U.S. dollar faces a weaker future, the specter of inflation and overall economic stagnation, the Canadian dollar should fare well. The oil, timber, metals and other commodities in Canada will only become more valuable if inflation does take off. What's more, while the euro zone and the U.S. are still reeling from the depth of the financial crisis, Canada's financial system and government spending have not been nearly as ugly. All that adds up to good things for the
CurrencyShares Canadian Dollar Trust
as a way to play the rising Canadian dollar in the months ahead.
iSHARES CANADA ETF
If you're not eager to take a stake in an individual Canadian stock, or if you just don't have enough money to invest in Canada and stay diversified, consider carving out a piece of the
iShares MSCI Canada Index Fund
. This Canada ETF fund is a great way to play the entire country's strength. Top holdings include the aforementioned Royal Bank of Canada (6.8% as of July 30), TD bank (5.7%) and Scotiabank (4.7%). Also included are Canada commodity stocks such as
Canadian Natural Resources
, each with a stake of more than 3% in this fund.
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