4 smart ways to invest in Canada
The Great White North has political stability and strength in banking and natural resources.
Canada’s political stability, notable strength in banking and natural resources, and solid investment value point to a good long-term opportunity now.
Canada as an investment destination isn’t getting its due; our recommendations below allow you to take advantage of plays on the Great White North that are now intrinsically strong but undervalued.
Let’s first examine Canada’s banking sector. Six banks hold about 90 percent of the nation’s banking assets. This is a classic oligopoly that enables them to price their services advantageously and maintain a stable deposit base.
The nation’s banks are consistently ranked among the world’s strongest and safest, most recently according to Bloomberg and Global Finance magazine.
Our favorite in the group is Bank of Nova Scotia (BNS). Popularly known as Scotia Bank, it’s well diversified in both operations and geography.
Scotia is expanding both through organic growth and acquisitions: 30 since 2007. Total assets have increased 27 percent in two years, and the bank’s significant international diversification includes Latin America and Asia.
However, returns on common equity have remained solid, averaging 17.4 percent over the last 5 ½ years, with steady asset quality and strong cost controls.
Canada is a resource-rich economy with huge confirmed oil reserves; it’s also a major producer and exporter of minerals, natural gas and agricultural commodities.
Our favorite investment in this broad sector is TransCanada Corp. (TRP). We like this conservative, high-yield stock partly because it has been depressed by political controversy and uncertainty, despite the underlying stability of its business.
TransCanada is one of the largest pipeline operators in North America, with some 35,000 miles of natural gas pipelines.
The U.S. government has delayed a decision about whether to allow complete construction of the partly built Keystone XL pipeline here. But TransCanada already is moving ahead with a new Canada-only proposal.
TransCanada’s low-risk pipeline business, with high barriers to entry, represents 77 percent of cash flow. And we believe management will continue to seek ways to offset declining natural gas volumes from western Canada.
Growth historically has been low but stable. Meanwhile, the dividend has increased for 13 consecutive years, rising 130 percent over that time. Yielding 4 percent now with dividend-growth a probability, this is another “bond substitute” for long-term investors.
Among Canada’s other investments, we also like Magna International (MGA). As one of the world’s largest, most diversified auto parts suppliers, it’s benefiting from the auto industry’s renaissance and increased outsourcing.
Based in Ontario, Magna provides a wide variety of services from vehicle engineering and assembly to parts production. With $32.7 billion in sales, it has 315 manufacturing operations in 29 countries.
Magna’s sales and earnings for this year’s first six months exceeded consensus expectations. Sales jumped 16 percent to a record $8.96 billion in the second quarter, and management raised full-year revenue guidance.
Analysts have boosted their earnings estimates for Magna International, for a current EPS consensus of $6.14 in 2013 and $7.38 in 2014.
Magna is cash rich ($1.2 billion, with low debt) and shareholder oriented. It has boosted its quarterly dividend by 78 percent over the past three years. The company is also in the middle of a 12 million share-buyback program.
Shares have soared over the last 12 months but the stock is still cheap in light of its growth, trading at just 13 times forward earnings. Given improving industry fundamentals, we believe the shares offer good value.
Numerous other Canada investments look attractive now for long-term investors, particularly in mining, railroads and agriculture.
The best single way to invest in Canada is via iShares MSCI Canada (EWC), an exchange-traded fund that tracks about 85 percent of the nation’s stock market. This ETF holds about 100 stocks that primarily trade on the Toronto Stock Exchange.
Some 40 percent of EWC’s holdings are energy and materials companies, led by Suncor Energy, Canadian Natural Resources, Enbridge and TransCanada. Financials account for another 35 percent.
More from MoneyShow.com
I don't like anyone who don't side with the USA. But there are times when pride has to let you make money.
The world is not all of the USA territory so I have to get on with living.
Well, I know anytime I see a "buy ________ investment now!," I know not to invest. Since this article was written by By Philip Springer, and is also connected with Moneyshow.com, all of which have vested interest in dispersing such information, it is clearly not a time to buy their "investments."
--The only way to win is not to play.
Hmmm. Then why are Canadians coming to the U.S. for healthcare and elective surgery?
Wasn't the Mayor of Montreal just arrested for Fraud -- and the Mayor of Toronto for smoking crack? Google it people.
Any suggestions on a cheaper pipe line company than TransCanada?
I lived in Canada. I have an intimate knowledge of what happens there. It si a good country, but they have been on a high for 5-6 years, especially real estate.
There real estate is correcting. Its a bad time to buy Canada.
They are far too dependent on china
DON'T INVEST IN Canada.
when will people ever learn. By low, sell high. Canada mirrors the USA, but does so 3-5 years late. They are now going into tough times ( especially with real estate)
When we were flying high in 2003-2007 they were in bad times.
people are such sheep.
Canadians are not friendly, they are worse than Americans. They are brought up in the English tradition where they are taught manners, but they are the worse back stabbers in the world.
They smile to your face, and then knife you in the back, eh.
Canadians are turn coats. Trust me.
Copyright © 2014 Microsoft. All rights reserved.
Serious issues like drought and the deterioration of the developed world spell opportunity for this industry leader.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.