7 Canada Investments for 2011

Well, there are a few reasons. First is the financial angle. Canada’s banks hold their residential mortgages. They do not sell them or repackage mortgages for securitization. That has allowed the nation to avoid the major damage that the financial crisis caused U.S. banks.

Also, Canada is resource rich but politically stable — a combination rare in this world right now. For instance, 33 million Canadians produce nearly as much GDP every year as 142 million Russians — but the Heritage Foundation’s Index of Economic Freedom lists Canada as number 7. By comparison, Russia ranked 143rd.

And if by chance the U.S. pulls out of its tailspin, Canada will share in that success too. After all, it is the United States’ top import and export partner. Oil sands and natural gas from Canada will always find a market in the U.S. Canada is known as the Saudi Arabia of oil sands and today is America’s largest supplier of imported oil. But since Canada’s resource export success isn’t tied to the U.S. — during 2009, Canada geared up its exports across the Pacific to resource-hungry China and Singapore — that means America’s recovery is a "nice to have" and not a "must have" for Canada to succeed in 2011.

So where can you put your cash to share in the Canada boom? Here are seven investments to consider.

I have recommended Canadian National Railway (NYSE: CNI) as one of my top 10 overall investments to subscribers of my Intelligence Report advisory service for three of the last four months. My price charts show that the stock is nearing new highs with more room to run. In July, the board announced the repurchase of 2 million more shares as part of the company’s ongoing 15-million-share repurchase program. CNI saw double-digit growth in its coal, auto, metal and minerals and intermodal freight traffic in its second quarter earnings report. As our resource-rich neighbors to the north continue to power through the economic downturn, rail stocks moving Canada’s commodities will continue to fare well

Another great Canada rail stock is Canadian Pacific Railway (NYSE: CP). In the second quarter of 2010, Canadian Pacific moved +22.4% more freight than it did in the second quarter of 2009. CP moved the freight for 9.7% less per unit, but the volume more than offset the lowered pricing. CP’s excellent performance in the second quarter was powered by +93.7% growth in the amount of sulfur and fertilizers it moved during the quarter compared to last year. Recent resistance near $60 is the last stopping point before pre-recession levels near $70.

I am impressed with the Bank of Nova Scotia (NYSE: BNS) right now. Known as Scotiabank, BNS recently purchased the Colombian operations of The Royal Bank of Scotland (NYSE: RBS), expanding its considerable presence in South America. Prudent management at BNS has been good for shareholders, while the reckless risk-taking at RBS had predictable results. Scotiabank has outperformed the market handily, including a +4% gain year-to-date compared with a slide of about -4% for the broader market. Top it off with a 3.7% dividend yield, and you have yourself a good low-risk buy.

Looking for more safe, high-yield stocks? Read: 7 Dividend Stocks to Grow Your Nest Egg

Canada’s 2010 budget promises the lowest corporate tax rate in the G-7 by 2012. The current rate of 22.12% will be reduced to 15% by 2012, making Canada much more competitive. Look for a flood of American companies to cross the border, along with their capital investments, to take advantage of the lower tax rates. That means big business for the Royal Bank of Canada (NYSE: RY), the largest Canadian Bank. RY stock is around $50 as of this writing, making it a great value buy near the bottom of its 52-week range.

Another strong Canada financial stock is Toronto Dominion Bank (NYSE: TD). TD Bank, as it is now known, is a leader in personal and commercial banking in Canada and the U.S., wealth management through its TD Waterhouse brokerage services, insurance and wholesale banking. TD has tallied nearly +10% gains year-to-date and continues to push higher. Top that off with a 3.4% dividend yield at current valuations paid all the way back 1857, and you can understand why this is a great bedrock investment.

As the U.S. dollar faces a weaker future thanks to overspending in Washington, the specter of inflation and overall economic stagnation, the Canadian Dollar should fare well. The oil, timber, metals and other commodities in Canada will only become more valuable if inflation does take off. What’s more, while the euro zone and the U.S. are still reeling from the depth of the financial crisis, Canada’s financial system and government spending have not been nearly as ugly. All that adds up to good things for the CurrencyShares Canadian Dollar Trust (NYSE: FXC) as a way to play the rising Canadian dollar in the months ahead.

If you’re not eager to take a stake in an individual Canada stock, or if you just don’t have enough money to invest in Canada and stay diversified, consider carving out a piece of the iShares MSCI Canada Index Fund (EWC). This Canada ETF fund is a great way to play the entire country’s strength. Top holdings include the aforementioned Royal Bank of Canada (6.8% as of 7/30), TD bank (5.7%) and Scotiabank (4.7%). Also included are Canada commodity stocks such as Barrick Gold (NYSE: ABX) and Canadian Natural Resources (NYSE: CNQ), each with a stake of over 3% in this fund.

As of this writing, Richard Young was recommending all of these investments to subscribers of his Intelligence Report advisory service.