4 Canadian Stocks To Buy On A Thriving Domestic Market
Zacks Investment Research | Aug 17, 2016 10:28PM ET
While the S&P 500 braved a tech bubble, a financial crisis and two recessions in the last decade to finally hover near its all-time highs this year, Canadian stocks also regained their lost ground. The slump in commodity prices had crippled Canadian stocks for a pretty long time. But, that is a thing of the past.
A slew of factors including stocks trading at cheap valuations, a healthy GDP outlook, banks surviving the financial crisis with less stress and the country being home to global mining players make us believe that Canadian stocks still have plenty of room for upside. In fact, this year, their gains have already toppled returns delivered by U.S stocks. Hence, investing in stocks exposed to a thriving Canada is not a bad proposition.
Canadian Stocks Surge this Year
Through the first eight months of this year, Canadian stocks outperformed U.S. stocks. Canada’s TSX Composite index’s year-to-date return is around 12%, way above the S&P 500’s return of about 7%. The index’s over exposure to natural resources and energy industries made it vulnerable to a commodity slump.
Commodity prices took a beating due to sluggish global economic growth, mostly led by a weak Chinese economy. Almost everything ranging from petroleum to potash saw their prices tank. However, the index made a comeback this year, thanks to commodity prices gaining traction. Needless to say, a weak Canadian dollar better known as “loonie” boosted exports and a sturdy government under Justin Trudeau instilled confidence in the economy.
Do Bulls Still Have Room to Run?
Even though Canadian stocks have moved north this year, they are cheaper than their American counterparts. According to Matt Barasch, the chief Canadian equity strategist for RBC Capital Markets, “If you go back 35 years and look at price-to-book ratios compared to the U.S., Canada has never been cheaper on a relative basis.” It’s indeed quite remarkable that Canadian stocks continue to trade at cheaper valuations amid a rise in commodity prices and recovery in earnings. This makes them quite attractive.
Canada’s GDP growth for the next year is also poised to beat that of America. According to TD Economics, the Conference Board believes that Canada’s GDP is expected to expand at a solid rate of 1.9% in 2017, whereas the U.S. economy is pegged to grow 1.7%. On the other hand, Brexit-affected Eurozone is expected to witness decelerating growth of 1.4%, according to Focus Economics. Robust economic growth will certainly boost Canada’s broader markets.
Sector Outlooks Encouraging
As the GDP is poised to be better next year, the odds of the country’s jobless rate whittling down from 6.9% increases. This in turn could boost consumer spending levels, the backbone of any economic growth. Rise in spending levels will work wonders for retail conglomerate George Weston Limited, doughnut chain Tim Hortons Inc., and media companies Rogers Communications Inc. (NYSE:RCI) and Bell Media Inc.
Meanwhile Canadian banks unlike their American counterparts indulged in fewer risks to sail though the financial crisis with ease. Canada’s central bank hasn’t trimmed rates as aggressively as other central banks across the globe. Canadian banks including Toronto-Dominion Bank (TO:TD) and Royal Bank of Canada (NYSE:RY) enjoyed bigger profits, while they paid out hefty dividends.
Canada’s global mining giants also enjoyed a bull run as global jitters boosted gold prices. The rise in the price of the yellow metal benefited mining majors Goldcorp Inc. (NYSE:GG) , Franco Nevada Corp (TO:FNV) and Turquoise Hill Resources Ltd (TO:TRQ) .
Top 4 Canadian Stocks to Buy Now
As prices of oil and other commodities have somewhat stabilized, with consumer-driven companies to banks to mining-behemoths all set to gain, investing in Canadian stocks will be judicious. These stocks are also far more attractively priced than their American cousins.
We have selected four such Canadian stocks that have a Zacks Rank #1 (Strong Buy) or 2 (Buy). Also, such stocks have a Zacks Investment Research
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