Investors looking for sanctuary from yesterday’s bloodbath might want to consider heading north.
Canada is surviving the Great Recession fairly well. The Great White North added jobs for the fourth straight month in July, adding 7,100 jobs. Although the U.S. added 117,000 jobs during that same time, Canada’s figure is impressive considering its population is about 34 million, roughly 10% of the United States, where more than 300 million live. Canada’s unemployment rate also fell to 7.1%, well below the 9.1% rate in the U.S.
To be sure, Canada is not immune to the deteriorating market conditions in the U.S., which is its largest trading partner. There is one big difference, however. Canadian banks were much more tightly regulated than their U.S. counterparts. Subprime mortgages were virtually nonexistent in Canada.
Add to this Canada’s vibrant energy sector (accounting for C$100 billion in revenue) and its robust agriculture exports (it’s the second-largest wheat exporter behind the U.S.), and the Canadian economy has plenty going for it. By the way, Canada’s Real GDP rose 3.9% in the first quarter, more than double the 1.8% earned by the United States.
Although some pundits argue that Canada’s economy’s growth rate has peaked, I am optimistic the country will continue to outperform, particularly if commodities prices continue to remain high, which seems likely. A strong Canadian dollar, though, also will have an effect on economic growth.
“Going forward, sound employment intentions and improving business sentiment should continue to support positive employment gains through the second half of 2011,” according to a Toronto-Dominion Bank (NYSE:TD) report. “That being said, we expect gains to remain in a range of 10,000-15,000 per month as economic growth winds down from its late 2010 early 2011 highs.”
There are a couple of ways to play the Canadian stock market. The iShares MSCI Canada Index Fund (NYSE:EWC) offers a broad exposure to Canada’s biggest companies, including Royal Bank of Canada (NYSE:RY), Toronto-Dominion Bank and Potash Corp of Saskatchewan (NYSE:POT). Barrick Gold Corp. (NYSE:ABX) and Goldcorp Inc. (NYSE:GG), two gold miners, also are holdings.
Toronto-Dominion and Barrick, in particular, are worth a look. The Toronto-based bank, which is up about 3% this year, has solid Canadian operations and has done a good job in expanding in the U.S. Northeast. Wall Street is high on T-D, as well, giving it an average price target of $92. It recently traded at $76.84. Barrick has been pounded more than 13% this year even as gold prices skyrocketed. The average price target for the world’s largest miner is $63.88, well above the $46.21 where it recently traded.
One Canadian stock Wall Street is not keen on is Research in Motion (NASDAQ:RIMM), maker of the BlackBerry. The introduction of five new models has not addressed Wall Street’s long-term concerns about the company.
Though not immune from the worldwide economic turmoil, the rewards of investing in Canada far outweigh the risks.
Jonathan Berr does not own shares of the companies listed.