3 Canadian investments for 2011

Our northern neighbor has big opportunities in banks, railroads and more because of strong financial footing and natural resources.

By InvestorPlace Sep 7, 2010 12:46PM

canadian flag © CorbisBy Richard Young, InvestorPlace.com

Canadian stocks are coming into favor as the specter of inflation rears its ugly head and the fate of the recovery is anything but certain. That’s because Canada’s financial system is stable and because the nation is rich with natural resources and can keep plugging along even if consumers don’t open up their wallets again anytime soon.

That means Canada investments could be big in 2011. Why Canadian stocks? Well, there are a few reasons:

First is the financial angle. Canada’s banks hold their residential mortgages. They do not sell them or repackage mortgages for securitization. That has allowed the nation to avoid the major damage that the financial crisis caused at U.S. banks.

Also, Canada is resource-rich and politically stable -- a combination rare in this world right now. For instance, 33 million Canadians produce nearly as much GDP every year as 142 million Russians. 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, too. 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. Canada is known as the Saudi Arabia of oil sands and today is America’s largest supplier of imported oil.

But since Canada’s resource export success isn’t tied to the U.S.-- during 2009, 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 in 2011.

So where can you put your cash to share in Canada's boom? Here are three investments to consider:

Canadian National Railway
I have recommended Canadian National Railway (CNI) as one of my top 10 overall investments to subscribers of Intelligence Report for three of the last 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 saw double-digit growth in its coal, auto, metal, and minerals and intermodal freight traffic in the second quarter earnings report. As our resource-rich neighbors to the north continue to power through the economic downturn, rail stocks moving Canada commodities will continue to fare well.

Canadian Pacific Railway
Another great Canada rail stock is Canadian Pacific Railway (CP). In the second quarter of 2010, Canadian Pacific moved +22.4% more freight than it did in the second quarter of 2009. 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 to last year. Recent resistance near $60 is the last stopping point before pre-recession levels near $70.

Bank of Nova Scotia
I am impressed with the Bank of Nova Scotia (BNS) right now. Known as Scotiabank, BNS recently purchased the Colombian operations of The Royal Bank of Scotland (RBS), 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.

For four more Canadian stocks to buy, follow this link.

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