As someone who lives and breathes the Canadian way of life, I often get called on by InvestorPlace to write about Canadian stocks to buy.
Some obvious names that trade on the New York Stock Exchange or the Nasdaq come to mind. Many of them depend on America for much of their livelihood. It’s why the latest U.S. election cycle has been mesmerizing television for Canadian business executives.
In November, CEOs across Canada and those operating from within the U.S. were definitely sweating the details. After all, when the U.S. sneezes, Canada catches a cold.
As professor Richard Leblanc notes, “There really isn’t an industry that’s immune from what happens south of the border. What goes on, goes right to the top very quickly.” Leblanc teaches governance, law and ethics at York University in Toronto.
Well, Joe Biden won and Donald Trump lost. Canada will now get ready to see how the relationship shifts — and it always does after a change in presidents.
So, for this article, I’m recommending seven Canadian stocks that generate a significant amount of their revenue in the United States. As the headline reads, each one could be considered the feather in America’s hat.
- Lululemon (NASDAQ:LULU)
- Shopify (NYSE:SHOP)
- BRP (NASDAQ:DOOO)
- Enbridge (NYSE:ENB)
- Toront0-Dominion (NYSE:TD)
- Thomson Reuters (NYSE:TRI)
- FirstService (NASDAQ:FSV)
Canadian Stocks to Buy: Lululemon (LULU)
I remember when I first recommended this apparel brand back in August of 2016. I called LULU stock a top 50 S&P 500 investment over the next decade. The only problem was it wasn’t part of the index — and still isn’t.
At the time, Lululemon’s sales in the U.S. accounted for over 60% of its fiscal 2015 revenue of $$2.1 billion (Page 61). In the company’s fiscal year 2019, U.S. sales accounted for over 71% of its $4 billion in annual revenue.
Despite an increase in the percentage of sales generated in the U.S. over these four fiscal years, the company also did an excellent job of growing sales in its home market of Canada and overseas.
As big a deal as this pick of the Canadian stocks was four years ago, it’s an even bigger deal today.
On Dec. 10, it reported Q3 2020 sales that grew 22% year-over-year (YOY), despite a serious downturn in walk-in traffic due to Covid-19. CNBC reports that Neil Saunders, the Retail Managing Director at GlobalData, said, “While a V-shaped recovery may not be materializing for most of apparel retail, Lululemon has bounced back from the weak start to its year with a stunning set of third-quarter numbers […] Our data also show that Lululemon has picked up plenty of new shoppers, especially in womenswear.”
So, when it comes to retail, Lululemon is one of the best stocks to own — and it just happens to be run out of Vancouver.
Given the returns of tech stocks in 2020, Shopify’s performance — a year-to-date (YTD) total return of 195% through Dec. 18 — seems almost pedestrian.
The reality is, though, that SHOP stock is having a good year and (barring some major change in consumer shopping habits) the company’s e-commerce platform will remain in demand for companies of all sizes.
As InvestorPlace’s Faisal Humayun stated recently, Shopify is crushing it.
“From a financial perspective, the company reported cash and equivalents of $6.1 billion [as of the end of September],” Humayun wrote on Dec. 14. He added, “In addition, with improving operating leverage, I expect operating cash flows increase in the coming years. This will allow the company to continue aggressive investments in growth and research and development.”
The last time I covered SHOP on a single-stock basis was in April, when it traded around $525. At the time, I wondered if the stock would be heading to $650 or back to $350, where it traded during the March correction.
I concluded that if you were holding Shopify stock for the long haul — say 2-3 years — buying in the $500s wasn’t a bad call. Now, it has doubled from April prices to over $1,170 per share.
Heading into 2021, I don’t know if SHOP will double again. However, solid returns definitely appear to be in the cards for this one of the Canadian stocks, given its business model’s undeniable strength.
BRP stands for Bombardier Recreational Products, but you probably better know its brands — Ski-Doo, Lynx, Sea-Doo, Can-Am, Alumacraft boats and more. While the company’s heritage is in snowmobiles, it has also grown to become a big seller of all-terrain vehicles (ATVs) and side-by-side vehicles (SSVs).
In the third quarter ended Oct. 31, BRP had sales of over 1.67 billion CAD (over $1.31 billion), 1.9% higher than in the same quarter a year earlier. However, on the bottom line, it had operating profits of 284.3 million CAD (about $223 million), nearly 37% higher YOY.
As a result of a more profitable sales mix in fiscal 2021, the company is expected to grow its normalized earnings per share (EPS) by about 37% this year, despite an overall 1.4% decline in sales. Consumers are paying top dollar for its year-round products (ATVs, SSVs) and that’s showing up on the income statement.
In November 2018, I recommended investors buy Polaris (NYSE:PII), BRP’s biggest rival. Right now, it’s up marginally over the two-year period. At the same time, DOOO stock is up 177% over the same period.
As it continues to gain global market share, I expect BRP to keep delivering strong double-digit returns for shareholders in 2021, earning its place on this list of the best Canadian stocks.
In 2019, Enbridge generated 30.1 billion CAD ($23.6 billion) in the United States, accounting for roughly 60% of its overall revenues (Page 120). In the past two fiscal years, ENB’s sales in Canada have grown by 10.4%. South of the border, however, they grew by a more robust 14.4% over the same period. While that might not seem like a big difference, when you’re talking about over 50 billion CAD in annual revenue, it’s noticeable.
Now, most of the Canadian stocks on this list are growth-oriented stocks. But Enbridge — whose energy infrastructure helps keep North America running — is a combination of value, growth and income.
On Dec. 8, the company declared a 3% increase in its quarterly dividend to 83.5 cents CAD. The annualized dividend rate of 3.34 CAD yields a very healthy 7.8%. Plus, with 3.95 billion CAD ($3.1 billion) in free cash flow over the past 12 months and growing at a healthy clip, ENB stock has plenty of cash to make the annual payments.
Its total return YTD is -16%. As long as the oil and gas industry continues to sputter, Enbridge might experience the same result in 2021. However, with the company expected to begin construction on the Line 3 pipeline project in Minnesota in the year ahead, Enbridge’s growth plans are starting to look up.
So, get paid by waiting on Enbridge to inevitably grow its business south of the border.
Toronto-Dominion Bank (TD)
It’s not been a good year for most Canadian banks, although Toronto-Dominion’s most recent quarterly results suggest the pandemic’s wrath may be coming to an end. Recently, TD stock has come on in recent months, gaining over 18% in the past three months alone.
The bank reported its Q4 results on Dec. 3. On an adjusted basis, TD earned 2.97 billion CAD (over $2.32 billion) in net income, slightly higher than the 2.95 billion CAD ($2.31 billion) it made a year earlier. For the entire year, it earned 9.97 billion CAD (roughly $7.8 billion), a little more than 20% lower than the year before.
What’s more, Toronto-Dominion’s U.S. retail banking business accounted for roughly 30% of its overall net income during the fourth quarter, raking in 871 million CAD ($658 million). Unfortunately, it was 27% lower than a year earlier. However, its Canadian retail banking was 3% higher YOY.
The most important figure in the bank’s Q4 report, though, was the steep drop in its provision for credit losses, which fell to 971 million CAD ($760 million) from 2.19 billion CAD ($1.72 billion) at the end of the third quarter ending on July 31 (Page 7).
Also, on a positive note, analysts expected TD to earn $1.27 during the quarter. It beat that estimate by 33 cents.
Once the U.S. economy returns to normal, Toronto-Dominion’s U.S. retail business ought to make a bigger contribution to the bank’s bottom line. And, let’s not forget that the bank also owns 13.5% of Charles Schwab (NYSE:SCHW).
In the meantime, enjoy its 4.3% dividend yield. Out of all of the Canadian stocks on the market, TD is definitely a solid pick.
Thomson Reuters (TRI)
Next on my list of some of the best Canadian stocks is TRI stock. In a challenging operating environment, Thomson Reuters reported excellent Q3 results on Nov. 3.
On the top line, sales grew by 2% during the quarter to $1.44 billion — and 3% if you exclude currency. On the bottom line, it earned 39 cents a share, 44% higher than a year earlier and 48% higher if you exclude currency.
In fiscal 2019, Thomson Reuters generated 79% of its $5.9 billion in revenue in the United States. So, even though TRI is controlled by Canada’s richest family — the Thomsons, who own 66% of the company’s stock — much of the company’s wealth has been earned in the U.S.
Recently, Thomson Reuters also completed a large-scale migration of its business information services to AWS, Amazon’s (NASDAQ:AMZN) cloud-computing service. The company’s digital transformation will enable it to become a more agile business in the future. As part of the migration, it moved thousands of servers to AWS.
While I don’t think you’re going to hit a homerun owning TRI stock the same way you will with Shopify, you can’t go wrong with this name if preservation of capital is important to you.
Last on my list of Canadian stocks is FirstService, a leader in outsourced property services in North America. It’s definitely the smallest of the seven stocks listed in this article. But what it lacks in company size, it makes up for in outsized shareholder returns. So far in 2020, it’s having a great year with a total return of over 41% YTD.
FSV is divided into two operating segments: FirstService Residential, which manages residential communities, and FirstService Brands, a provider of “essential property services” like painting, property damage restoration, flooring, closets and home inspections.
In the trailing 12 months ended Sep. 30, FSV had $2.67 billion in sales, 90% of which was generated in the United States. The rest was made in its home base of Canada. Employing approximately 24,000 people, it had trailing 12-months adjusted EBITDA of $268 million, roughly 10% of its top-line sales.
In 1995, the company had $37 million in revenue. Some 24 years later in 2019, revenue was $2.41 billion. That makes for a compound annual growth rate of 19% (Page 5).
You can’t go wrong with businesses that make or save customers time and money. FirstService does both. It’s an excellent long-term buy.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.