Economist Ed Yardeni just released year-to-date performance numbers for the world’s stock markets. Here in the U.S., our stock markets are middle of the pack, up 7.3% through May 8, 20 basis points higher than the MSCI all-country index.
The U.S. isn’t outperforming most of the major players around the world in 2017, including Japan, U.K. and most of Europe.
However, there’s one country that’s definitely not pulling its weight, and that’s our neighbors to the north, where Canadian stocks are up just 2.3% in local currency, worse than every country in Yardeni’s research except Russia which is down 11.5% in local currency.
If you’re a big believer in reversion to the mean now is as good a time as any to look for Canadian large-cap stocks to buy because, relative to the rest of the world, Canadian stocks are cheap.
But which Canadian stocks should you buy? Well, there are approximately 134 Canadian companies listed on either the NYSE or Nasdaq.
Here are my three favorites.
Canadian Stocks to Buy: Shopify Inc (US) (SHOP)
If you got in on the Shopify Inc (US) (NYSE:SHOP) IPO in May 2015 and are still holding the e-commerce platform’s shares, you’re up 221%. Closing in on its two-year anniversary as a public company, SHOP continues to do no wrong generating huge gains in each of the first four months of 2017.
It’s up 102.4% year-to-date through May 8 despite not making any money.
I was initially a skeptic of its business model, but like Amazon.com, Inc. (NASDAQ:AMZN), which failed to make money for some years earlier in his existence, Shopify is more worried about scaling the business than making a profit — and so it should be.
You only get one chance at creating a great product, and if you’re more concerned about putting dollars in your pockets rather than delivering a product that truly helps small- and medium-sized businesses run their e-commerce platforms on any device whether it be mobile, tablet or desktop, you’re going to fall short.
Shopify delivered tremendous first-quarter results May 2; revenues increased by 75% year-over-year to $127.4 million, while gross merchandise volume — it gets paid both a monthly subscription fee by businesses using its e-commerce platform and when Shopify processes a payment — grew 81% to $4.8 billion.
SHOP stock trades at 16.6 times sales; it’s not cheap. However, as Canadian stocks to buy go, this e-commerce gem will continue to amaze. Long-term, you’ll regret taking a pass based on valuation.
Canadian Stocks to Buy: CGI Group Inc (GIB)
Montreal-based IT firm CGI Group Inc (NYSE:GIB) has been very busy in 2017 making tuck-in acquisitions of U.S. software consulting firms in both Alabama and Colorado. Despite the news on the acquisition front, CGI’s stock has barely moved year-to-date up 0.1%.
Founded in 1976, CGI is the fifth-largest independent IT and business process services firm in the world with annual revenues exceeding $7 billion with a backlog of more than $14 billion. It generates 28% of its revenue in the U.S., its biggest market, with Canada a distant second at 16%.
“As organic growth continues accelerating across the majority of our global operations, we are making strategic acquisitions to enhance our end-to-end portfolio with high-end digital and industry domain expertise,” said George D. Schindler, President and Chief Executive Officer about Q2 2017. “I am pleased with our team’s performance in Q2, delivering 5.6% revenue growth, the fourth consecutive quarter of positive growth, while at the same time expanding net margin.”
Over the past five years, CGI Group stock has delivered an annualized total return of 17.4%, 303 basis points higher than the S&P 500. A consistent performer, it has had just one down year (2008) in the past decade.
Financially sound with net debt just 11.9% of its $12.6 billion market cap and annual free cash flow of close to $1 billion, it’s got plenty to continue its “Build and Buy” growth strategy.
Outside of Shopify, CGI Group, in my opinion, is Canada’s best IT firm trading on a U.S. exchange.
Canadian Stocks to Buy: Brookfield Asset Management Inc (BAM)
Good capital allocators are hard to find. Bruce Flatt and the rest of the team at Brookfield Asset Management (NYSE:BAM) manage one of the best collection of infrastructure, real estate and private equity assets anywhere in the world.
The Globe and Mail recently ranked Flatt, the seventh most powerful person in Canada.
“During his 15 years as CEO, Flatt has built an investment juggernaut with $250 billion (U.S.) in assets — in the same league as Canada’s largest pension funds,” wrote the Globe and Mail. “He has assembled a team of financiers capable of the same under-stated negotiating, with deal-hunters in more than 30 countries.”
Since Flatt became CEO in 2002, BAM has achieved a total return of 1,350%, significantly better than the 183% return for the S&P 500. Worth $1.3 billion, he’s earned every penny, long-time shareholders would surely tell you.
Simply go through a list of Brookfield investments, and you’ll realize it’s a mini-version of Berkshire Hathaway Inc. (NYSE:BRK.A, NYSE:BRK.B).
As far as Canadian stocks go, especially large caps, Brookfield is easily one of my favorites. If you can only buy one of these three stocks, It has to be Brookfield.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.