Canadian Prime Minister Stephen Harper didn’t just have close encounters with panda bears during his recent official trip to China. He spent a lot of time cozying up to top officials and businessmen and scored a big agreement: Going forward, Canadian companies will be given the same treatment as domestic Chinese enterprises when they do business there. That comes hard on the heels of tough comments by Harper that ensuring “market security” might mean Canada ramps up its efforts to sell energy products to trading partners other than the U.S. And China is a willing buyer, Chinese Premier Wen Jiabao told Harper during the trip.
Why should we care? Panda politics has real-life consequences, for investors as well as companies trying to gauge which way the trade winds are blowing. Canada’s effort to play one potential market against another in an attempt to maximize prices for its raw materials is nothing new. Rewind to the 1980s and the same scenario took place, only the commodity in question was coal, not oil, and the competing buyer was Japan, not China. But these trade policies offer just one more reason for investors to take a hard look at Canadian equities, suggests Hans Olsen, head of Americas Investment Strategy at Barclays Wealth, the high-net worth investment division of the giant financial institution.
“The country’s economy looks stronger than that of the U.S., having grown faster in 2011 and boasting a lower unemployment rate,” Olsen says. Nonetheless, the bellwether Toronto Stock Exchange index trades at a lower valuation than the S&P 500.
The bullish story about Canadian banking stocks has become well known in the years that have elapsed since the financial crisis highlighted the strength of their balance sheets compared to their American peers. Now it might be time to focus some attention on Canada’s natural resource stocks – the kinds of companies that got the country the reputation of producing rocks and logs and little else.
Some analysts believe Barrick Gold’s (ABX) assets are undervalued, and that the gold mining company’s reserves and relatively high operating margins deserve a richer share price. Methanol manufacturer Methanex (MEOH) reported its fourth-quarter net income soared 151 percent from year-earlier level; it also offers an attractive, if not extra-lavish dividend yield.
But the array of intriguing Canadian stocks stretches beyond the traditional energy, lumber and mining stocks. IMAX (IMAX), whose stock has been lagging badly in recent years, soared 11 percent in Tuesday’s trading after the company announced a deal to install four of its giant-screen theaters across China. (Yup, panda diplomacy paid off quickly….) But the company also is likely to do well by offering moviegoers a chance to watch what is likely to be one of the hottest tickets this spring – the first in a series of movies based on The Hunger Games and its sequels by novelist Suzanne Collins – on a giant screen at theaters across North America; analysts expect it to be the hottest big-screen ticket since Avatar propelled record numbers of moviegoers to Imax theaters.
Even if the Canadian economy does suffer in reaction to sovereign debt woes elsewhere, Canadians are likely to remain addicted to their Tim Hortons (THI) donuts and coffee, a national obsession that is also one of the country’s ten trendsetting brands in the eyes of consumers, according to an Ipsos Reid poll (another was the Cirque du Soleil). Analysts boosted their ratings on the company’s stock late last year, and anyone who is wondering how much further Dunkin’ Donuts (DNKN) has to run in its post-IPO winning streak may want to ponder this as a relatively inexpensive alternative – and one that pays a dividend.
And speaking of dividends… Canada has a lot of ‘em. The Royal Bank of Canada (RY) – one of those resilient Canadian superbanks that were too big to fail but didn’t even come close to failing in 2008 – offers a yield of nearly 4 percent, and the bank has a return on equity that would be the envy of any of its U.S. peers. Something even safer? Well, there’s the venerable gas pipeline operator TransCanada (TRP). Although the Keystone pipeline’s construction has been delayed at minimum after the Obama administration turned down needed permits – the catalyst for Harper’s mutterings about “market security” – TransCanada has another 12 billion Canadian dollars worth of other new projects coming onstream. Yesterday, it reported its fourth-quarter earnings jumped 34 percent and boosted its dividend, meaning investors can now collect a yield of 3.87 percent. As Canadians might say, not too shabby, eh?