February was the best month by far this year for the U.S. markets, yet for many investors, it’s simply not enough.
The benchmark S&P 500 index was about flat — not particularly impressive in and of itself but a solid improvement from January’s 4% loss. But on a year-to-date basis, the S&P has yet to break even, despite positive economic data that is seemingly supportive of higher moves.
In the midst of this stalemate, however, Canadian stocks have provided a brighter alternative.
The Toronto Stock Exchange — Canada’s equivalent of the S&P 500 — had a mediocre month in February. But because Canadian stocks didn’t suffer as sharp volatility as the American markets, against a YTD basis, the TSX is up more than 2%.
Mathematically, this makes the case that these are the better stocks to buy. True, such returns aren’t going to make investors rich overnight, but the reduced choppiness and steady gains are preferable over the wild ride that American blue chips have incurred.
This is the case even though a good portion of Canadian stocks are focused on the commodity markets. Last year was particularly rough for the TSX for precisely this reason, with our northern neighbor’s index losing 12%. The energy collapse, along with the slide in precious metals and the broad mining industry, contributed to the bearish sentiment towards Canadian stocks.
The S&P wasn’t an outperformer in 2015 by any means, but it did at least maintain course.
That said, Canadian stocks have had time to adjust to the new reality. With bearishness in the resource sector no longer a surprise, companies in affected industries have taken corrective action. In addition, analysts have cut back on their forecasts, taking a good chunk of the pressure off several Canadian stocks.
Perhaps the best part is that the energy and metals markets are on a strong rally. Whether we’re talking Brent crude oil, gold or copper ore, demand is definitely picking up.
That’s great news for investors in Canadian stocks, but contrary to common misconception, they have a fairly diversified portfolio of opportunities. This wide range of options combined with a competitive spirit to get the TSX back on track makes Canada an enticing bet.
Here are three Canadian stocks to buy that should beat the markets — and their Yankee counterparts!
Canadian Stocks to Buy: Dominion Diamond Corp (DDC)
For better or for worse, when it comes to diamonds, one name stands above the rest — DeBeers Corp. Known for its timeless slogan, “A Diamond Is Forever,” DeBeers radically changed the perception of jewelry and its standing in American culture.
The mystique and controversy of DeBeers is that they were able to maintain unquestioned dominance in the diamond industry, even after the precious stones ceased to be rare. Yet due to the aura of the exclusive industry, the sector remains a viable business opportunity.
But how does one go about investing in diamonds?
Enter Dominion Diamond Corp (DDC). While it may not have the sex appeal and the bad-boy image of DeBeers, DDC is one of the few direct plays in the diamond industry. It also allows the investor to be free from the stigma of civil war and other unpleasant details that comprise the concept of the commonly labeled blood diamond.
But the real beauty of DDC is that a profitable business and ethics don’t have to be mutually exclusive. Thanks to its mining interests in Canada’s Northwest Territories, DDC is the “world’s third largest producer of rough diamonds by value,” according to the company website.
Of course, all this talk gets lost by the wayside if the luxury retail markets both in Canada and abroad won’t bite. Fortunately, even here, Canadian stocks and DDC in particular are beneficiaries of a tailwind. The latest Index of Consumer Confidence — prepared by the Conference Board of Canada — shows a possible recovery in the country’s economy. If anything, the markets have been very positive. Over the past five days, DDC stock has gained nearly 17%.
Among Canadian stocks to buy, DDC has a speculative risk-reward structure. However, an argument could be made that a substantial amount of the risk has been taken off the table. In addition, there is evidence that the commodity and retail markets are moving in a supportive direction.
Canadian Stocks to Buy: Toronto-Dominion Bank (TD)
When it comes to choosing which bank stocks to buy, Toronto-Dominion Bank (TD) may not roll off the tongue as a first or even a fifth choice. However, many Americans have already done extensive business with TD without perhaps realizing it.
According to their corporate profile, TD employs more than 85,000 people, with more than 25,000 of those working here in the U.S. via their subsidiary, TD Bank. As an added note, it is one of the 10 largest banks in America, having historical roots dating back to the Civil War era.
But the real incentive for TD stock is its outperformance relative to the banking industry. While it did suffer from the new year’s shock, Toronto-Dominion regained its footing since mid-February. On a YTD basis, shares are up a little over 3%. The same can’t be said for American bank stocks, particularly the majors. For example, JPMorgan Chase & Co. (JPM) is down nearly 11%, Citigroup Inc (C) is off 20% and Bank of America Corp. (BAC) is in need of a lifeline at -22%.
Fundamentally, American bank stocks also have a less attractive risk assessment, clearly giving the edge to TD as one of the better stocks to buy. Take a look at the dividend yields. The JP Morgan, Citigroup and Bank of America yields average only 1.6%, with JPM leading the group at nearly 3%. On the other hand, TD’s current yield is at 4%. Simply put, it’s the best of both worlds — growth in the capital markets and more generous passive income.
Canada’s Toronto-Dominion may not necessarily be a household name, but the evidence in the financial sector is undeniable — TD is one of the best stocks to buy right now!
Canadian Stocks to Buy: Pan American Silver Corp. (USA) (PAAS)
No discussion about Canadian stocks would be complete without mentioning the mining industry — it’s what Canadians do best! And one of the most exciting names in the sector right now is Pan American Silver Corp. (USA) (PAAS).
Yes, the precious metals — in particular, silver prices — have been a veritable war zone since peaking in 2011. But this year has seen a dramatic turnaround in gold and silver markets, and Canadian stocks specializing in their extraction and production have seen an even greater lift.
Need convincing? Over the past 30 days, PAAS is up about 20%. Unlike other stocks, PAAS had a clear run in February with no pronounced dips in the uptrend. Against the YTD metric, PAAS is up a smoking hot 55%, and from its January bottom, shares have taken a commanding 87% lead.
Backed by Canada’s vast natural resources, along with a very possible recovery in silver prices, PAAS — while certainly speculative — is one of the most exciting stocks to buy.
Critics may point out that some American silver stocks have bested by a wide margin the phenomenal returns of PAAS. A prime example is Coeur Mining Inc. (CDE). In the past month, CDE stock is up over 95%.
Be that as it may, PAAS is a much bigger outfit by market capitalization. In addition, PAAS is much more stable on the balance sheet. Despite its lofty position in the markets, CDE is highly leveraged with a long-term debt of $480 million against a cash account of only $200 million. In contrast, PAAS’ debt is only about 22% of its on-hand cash.
Like other Canadian stocks, PAAS hits the right balance between stability and growth — even in a volatile industry like silver mining.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.