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business newsTwo Canadian Stocks Ready for Explosive Growth
By
MoneyShow.com Sep 21, 2011 10:45 am
Here, two companies with rapidly growing earnings, strong balance sheets that offer excellent appreciation potential over the next two to three years.
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Certainly the Canadian economy follows in the footsteps of the U.S. economy, but the economic volatility of the economy in Canada seems considerably less than that of the U.S. Canada avoided the financial crisis that hit the U.S. three years ago because Canadian banks were not allowed to lower their lending standards, and they were required to retain their conservative investments.
The Canadian economy performed much better than the U.S. economy and many foreign economies during the past three years. In fact, the Canadian economy had the smallest downturn during the recent global recession of any of the G7 countries: the United States, Canada, France, Germany, Italy, the United Kingdom, and Japan.
As of the end of the second quarter, Canada is the only country in the G7 to achieve record-high gross domestic product levels in 2011. Canada’s economy has risen more than 8% during the past eight quarters.
Why? The banking sector is healthy, prices for new homes have risen for 18 consecutive months, and high prices for precious metals are helping the country’s huge mining industry.
Canada has three stock exchanges. The Toronto Stock Exchange (TSX) is the largest, although the New York Stock Exchange (NYA) is 18 times the size of the TSX in terms of dollar volume.
The Toronto Stock Exchange Index, which is somewhat over-weighted in natural resource and bank stocks, outperformed the S&P 500 (GSPC) in 2006, 2007, 2008, 2009, 2010, and also thus far in 2011. Since the end of 2005, the TSX is up 8.1% compared to a decline of 8.9% for the S&P 500.
The current price-to-earnings (P/E) ratio for the TSX is close to 20, but gold and mining stocks tend to sell at high P/Es and skew the ratio higher.
During the past 15 months, I have recommended four Canadian stocks: Canadian Pacific Railway (CP), Gildan Activewear (GIL), Lululemon Athletica (LULU) and Silver Wheaton (SLW). All have performed very well despite the recent gyrations in the stock markets around the world.
In addition, I have recommended other Canadian stocks, such as Magna International (MGA) and Tim Hortons (THI), which have also performed very well during the past 16 months. In all, my Canadian recommendations are up 54%, compared to a minuscule 2% gain for the S&P 500.
I continue to think Canadian stocks provide an excellent opportunity to find undervalued stocks with excellent appreciation potential. And the August stock decline has created many new buying opportunities. I strongly recommend that investors take advantage of the current low prices and buy undervalued Canadian stocks.
I screened my firm's database to find undervalued Canadian companies with rapidly growing earnings and strong balance sheets. I believe the two companies recommended below offer excellent appreciation potential during the next two to three years.
Canadian National Railway (CNI)
Based in Montreal, Canadian National Railway operates Canada’s largest railroad system covering Canada from east to west and the central U.S. south to the Gulf of Mexico.
Canadian National Railway is the most efficient rail operator in North America, with high profits and low costs. The company hauls a wide variety of goods, including forest products, intermodal shipping containers, farm products, petroleum, and chemicals.
No positions in stocks mentioned.
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