4 smart ways to invest in Canada

The Great White North has political stability and strength in banking and natural resources.

By MoneyShow.com Oct 23, 2013 3:40PM
MoneyShow.comImage: Canada (© Royalty-Free/Corbis)By Philip Springer, Personal Finance

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



41Comments
Oct 26, 2013 5:19AM
avatar
and a good place to raise a family no medical insurance very less crime and great salaries
Oct 26, 2013 6:04AM
avatar
Canada remain a strong country,they don't carry a lot debt ,but it got it cold weather(have to take the good with the bad)  Great Day BYE 
Oct 26, 2013 9:43AM
avatar
People are very friendly, the real estate is very stable, economy is in great shape, the currency is very strong ...... all things that the US doesn't have!!! Thanks Barry? You've done so much damage in just 5 years. Maybe you should go to Canada and take a few seminars!!
Oct 26, 2013 3:01PM
avatar
Failing sour grapes that Canada is not going bankrupt. I will not bite off my profit nose just to spite them.
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.

Oct 26, 2013 11:17PM
avatar
The Great White North has lost a lot of its luster. Free healthcare comes with long wait times and medicines are not free at all. Sky-high taxes because moochers want sky-high benefits. Sky-high real estate values plus bottom basement salaries by people who try to low ball each other by doing someone's job cheaper than the other person caused by this same group of individuals who are friendly in your face and will stab you hard in the back once you turn around are the main reasons of why anyone would want to invest in Canada in the first place unless they have too much money to burn. If it was me, flushing that money down the toilet would be a better alternative because that is what exactly happens to that money that is invested in Canada - be better off flushing all of it down the toilet.
Oct 26, 2013 4:59PM
avatar

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.

Oct 26, 2013 9:33PM
avatar
I never felt so much like a man without a country as when I visited Canada. I was harassed by the border agents, interrogated like a Jew, and made to wonder why in the hell I'd ever want to be there again. This was just for a chance to go moose hunting in Alberta. No thanks Canada, my investments will be closer to home!
Oct 27, 2013 12:08AM
avatar

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.

 

 

Oct 26, 2013 7:56PM
avatar
Canada would be the last place I would invest, they take their lessons from the US, if you want to invest in a foreign country, try SE.Asia, Thailand is growing and so is Malaysia, also most of Indonesia is in the Free Trade area . Labors cheap and economy is stable, more and more large US and UK companies are moving here. That's where my money is.
Oct 27, 2013 12:01AM
avatar

Any suggestions on a cheaper pipe line company than TransCanada?

Thanks!

Oct 26, 2013 1:53PM
avatar
Be careful investing in Canada. They make everything nice and easy for you, but if there is any grey area in a dispute no matter how insignificant you think it is they will side with the Canadians and take your money.
Oct 26, 2013 12:16PM
avatar
I think I'll stick with America's market.....it is still better that any other market in spite of Obama and clan's attempt to destroy it. 
Oct 26, 2013 10:04AM
avatar

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

Oct 26, 2013 10:01AM
avatar

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.

Oct 26, 2013 10:11AM
avatar

Hockey Dude

 

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.

Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

116
116 rated 1
284
284 rated 2
461
461 rated 3
671
671 rated 4
628
628 rated 5
618
618 rated 6
615
615 rated 7
495
495 rated 8
347
347 rated 9
115
115 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
DYNDYNEGY Inc10
TAT&T Inc9
VZVERIZON COMMUNICATIONS9
EXCEXELON CORPORATION8
AAPLAPPLE Inc10
More

VIDEO ON MSN MONEY

ABOUT

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.