Who would have thought a beaver could run faster than an eagle?
You might want to say that it’s only one quarter and that the Canadian stock market has been beaten up nicely by the US stock market for the past… well I don’t remember since when, but let’s just say that you should never bet against America ;-). If you still have doubt, let’s just take a look at how both markets have performed since the 2008 crash:
But recently, the Canadian stock market has been showing some very interesting perspectives. After all, yesterday’s winner is probably not the horse you should bet on today!
Why the Canadian Stock Market is The Best Place to Be Now
I don’t write this because I’m Canadian. In fact, I was heavily invested in US stocks between 2012 and 2015 and this had served me well. However, in this beginning of 2016, I found several very interesting companies to purchase (RY, AGU, CNR, EMA) on my side of the border. I guess the first reason for buying Canadian stocks at the moment is the chances of seeing the currency much weaker than this is almost impossible (especially when we hit 1.45 exchange rate!). But I’m not a big believe in fx rate bets over the long run. I have other reasons to believe the Canadian stock market was the best place to invest my money right now.
Hidden Gems in the Canadian Market
My favorite saying about investing is:
“The time to buy is when there’s blood in the streets.”
Well when the TSX over lost 20% between April 2015 and January 2016, I call for the bloody street:
While the stock market is in a pretty hectic mood, this is the perfect time to invest. What I find particularly interesting at the moment is that most of this important drop is related to the collapse of oil prices. However, believe it or not, the Canadian stock market is more than an oil market. The best proof I can give you is the fact that even though it’s been a very tough 2 years for the oil industry, Canada hasn’t entered a recession yet. Unless you take the recession definition to the letter (exactly 2 consecutive quarters of negative GDP growth), the Canadian economy has been able to keep its head above water over the past 2 years. The services sector and exports had taken the lead and now that oil prices are gaining some strength, we can see there are several opportunities.
First, the oil industry. Well this one was an obvious choice. What is not so obvious is how to navigate through the bleeding companies. Some will die, some will survive, can you make the right choices? This is another story. I published a special review in January for my DSR members as it is quite a challenge to make sure you pick the survivor at the moment. But still, this is where the money is.
Second, the financial industry. Canadian banks have rarely paid such a high dividend yield. Besides 2008, this is probably your best chance of picking super strong dividend growth companies for your portfolio. Everybody is worried about oil sector defaulting on their loans and the possibility of a mortgage industry collapse. However, most investors have forgotten that banks have less than 3% of their portfolio on average concentrated in the oil industry. As for mortgages, they have been able to diversify their activities through capital markets, US banking and wealth management to cover for any housing slowdown in Canada.
Then, there are more, a lot more. The thing is that since roughly 50% of the Canadian stock market is concentrated in resources and financials, the other great dividend payers are buried under a pile of negativism. Hidden in this pile, I was able to find some gems such as Agrium (AGU), SNC Lavalin (SNC), Canadian National Railway (CNR) and Emera (EMA) in the past 12 months.
Unfortunately, not everything is on sale right now. There are also companies whose shares are down and that will stay down because they will not adapt to the current economy. How can you tell the difference? I think I know…
Here’s a Guy to Show You The Way
“Pat McKeough is one of a select few commentators who stands out from the many shills, flacks and frauds who inhabit the investment universe. The extent of my personal investment advice is to heed the advice of this gentleman.”
Financial Post Columnist
Results calculated by Hulbert Financial Digest, an independent authority on published investment advice, show that McKeough’s advice has generally surpassed returns from market averages. MarketWatch has called McKeough “one of the top investment letter editors on the continent”. His proprietary ValuVesting System focuses on assembling a low-risk investment portfolio of stocks that appear to have exceptional quality at a relatively low price.
Pat McKeough is the publisher and editor of the investing newsletter The Successful Investor focusing solely on the Canadian stock market. I think I just made this obvious he runs the best Canadian newsletter around. While I’m very proud of my own membership platform, I must admit that I still read Pat’s newsletter.
This is why I reached out to him in order to get a great deal for my readers.
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Disclaimer: I’m long RY, AGU, EMA, CNR
What’s your opinion about POT ?
I’ve covered both Potash (POT) and Agrium (AGU) in a DSR newsletter a while ago. Before the dividend cut, I already had a preference for AGU. Agrium is more diversified due to its retail business.
Potash is highly dependent on potash price. The outlook doesn’t look too well for this commodity. When a company cuts its dividend, it’s an automatic sell for me (I recently did it with with BDI.TO). POT was part of some of our DSR portfolios and we sold it as well. I think there are better opportunities than POT at the moment.
I hope it helps!
I agree. Canadian market is still very attractive although I did not like the recent stock market boost in March as a lot of bargains are gone. I will keep some cash available to pull trigger. Let’s see how it goes. Thanks so much for sharing!
What do you think of BDI at this price? At around $4 it appears very cheap.
I’d call it a “good risk”. If the oil price could come back to $50-$60 in a near term, BDI will rise again. However, we are talking “speculative investment”. I’ve decided a while ago that I would not touch this type of investment anymore (got burnt too many times!).
Thanks Mike for the quick response. I definitely agree that it’s a speculative buy at best. It could easily drift down to $3 or lower before the stock price improves. I’ve been allocating <5% of my portfolio to some speculative plays and so far have been doing OK, while still following DGI with the other 95%.
Great site by the way. I've been an avid visitor of your site for about a year now and appreciate your insight.
thx for the kind words 🙂
With less than 5%, I think it’s a good play 😉 I often see investors putting too much in risky investments while they ignore their core. I like to have one or two riskier companies but never with a big proportion of my portfolio(currently invested in AGU for that reason ;-)).
Thanks for sharing. I think there’s some great investments out there beyond in the USA. I could happily just invest on the Australian Stock Exchange and get a good amount of diversification (particularly with companies who operate overseas).
I reckon Canada probably didn’t have as deep a recession as the USA did during 2008 so if you extended your graph back a couple of years, Canada didn’t fall anywhere near as far. It all depends when you invest and the price you get I suppose.
Canada should do just fine, just like Australia will 🙂
I’m long on Linamar. Selling at a discounted price below $60. Thoughts?
I’m sorry, I don’t know this company at all. PE ratio seems very low, can you explain that? Sometimes there is a reason, and some other time, it’s because you made a good purchase!
Thx for sharing this. Until now, I actually never looked at the Canadian market – sorry for that 😉
It looks indeed that there is a buying opportunity coming. It has me interested at least. I looked round a little bit and could use some feedback on how a European would best invest in Canada.
I see 2 possibilities
1- buy on the Canadian stock exchange. Here, Vanguard VCN looks to be a good candidate. How does a Canadian investor invest in the home market? The downside here is the higher trading fee I need to pay with my broker.
2- I actually found also EWC – a NYSE based tracker. This caught my interest for a simple reason: There are options available. That is a product I like. Unfortunately, the options are not very liquid, so, not sure I would do this.
The EURCAD exchange rate is around 1.48 right now. It bounced the last few years between 1,57 and 1,30. So, it is fairly in my advantage.
Hello Amber Tree,
I don’t know if you have access to the Canadian market in Europe, but there are several options on the US market (most Canadian banks and telecoms are also traded with a US ticker for example).
I like picking my own dividend stocks on the Canadian market. For foreign investors, I guess the best option would be to pick a ETF like the VCN you found 🙂
Going into individual stocks is not my personal plan. Most of this comes from a Belgian tax law that taxes cap gains from individual stock at 33 pct when sold within 6 months. With my options on top of the stock, there is too much that can trigger that tax. And I am tax adverse… 🙂