Canada, as an investment destination, isn't getting its due; our
firm's recommendations below allow you to take advantage of plays
on the Great White North that are now intrinsically strong but
Let's first examine Canada's banks. Six of these banks hold about
90% of the nation's banking assets. This is a classic oligopoly,
which 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
Our favorite in the group is
Bank of Nova Scotia
). Popularly known as Scotia Bank, it's well diversified in both
operations and geography. Scotia is expanding both through organic
growth and acquisitions; it's had 30 since 2007. Total assets have
increased 27% 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% over the last five and a half years, with steady asset
quality and strong cost controls.
Canada is also 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
). 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 US 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% 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% over that time. Yielding 4% now, with dividend-growth a
probability, this is another bond substitute for long-term
Among Canada's other investments, we also like
). 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% 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% 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
(NYSEARCA:EWC), an exchange-traded fund (ETF) that tracks about 85%
of the nation's stock market. This ETF holds about 100 stocks that
primarily trade on the Toronto Stock Exchange. Some 40% of EWC's
holdings are energy and materials companies, led by
Canadian Natural Resources
(ENB) and TransCanada. Financials account for another 35%.
Editor's Note: This
article by Philip Springer was originally syndicated by
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