It’s late to sell cheaper Canadian stocks, convert to pricey U.S. dollars and buy costlier U.S. stocks. This strategy is apt to backfire. Many of The Investment Reporter’s Key Canadian stocks are multinational corporations. Buy them until an eventual recovery in the loonie makes U.S. global stocks more affordable.
We recently came across some advice that has arrived too late and is likely to backfire. This advice was in the March 28 issue of The Globe & Mail.
The title of the article was “Time to rethink overexposure to domestic stocks. With declines in Canadian industries, investors would be wise to go global.” This article quotes a portfolio manager as saying, “If you look at the currency, plus the companies, it’s where the U.S. can provide great opportunities for Canadian investors. Because our market is now so small and limited.”
We think that this advice comes far too late. The time to buy U.S. global stocks was when the loonie was worth about a U.S. dollar. We regularly urged you to buy U.S. stocks back then. Now that the loonie is so much lower, buying U.S. stocks is less attractive.
Buy low and sell high—not the opposite
Worse, we think that following this advice would lead you to sell low and buy high. It advocates that you sell cheaper Canadian stocks, turn the low loonies into pricey U.S. dollars and buy costlier U.S. multinational corporations. Selling low and buying high is just the opposite of what you should do: buy low and sell high. Canadian global stocks are now cheaper than they were.
The Canadian stock market is indeed small and limited. But on the positive side, Canada is a trading nation. As a result, there are many companies with lots of foreign exposure. The Globe & Mail article correctly points out that Alimentation Couche-Tard has modest exposure to Canada. It earns most of its money outside Canada, particularly in the U.S. and Europe. Other Investment Reporter Key stocks also have the advantages of multinational corporations.
The Globe & Mail article quotes an advisor as saying that Canadians have far too much exposure to Canadian banks. Keep in mind, however, that Investment Reporter Key stock Toronto-Dominion Bank has more branches in the U.S. than in Canada. Key stock Bank of Montreal is building up its business in the U.S. Midwest. And Key stock Bank of Nova Scotia is likely to profit in the long run by focusing on under-served emerging markets. Similarly, Key stock insurers Manulife Financial and Sun Life Financial are building their multinational corporations in under-served Asia.
Key stocks Canadian National Railway and Canadian Pacific Railway do a lot of cross-border trade. If the strengthening U.S. economy imports more from Canada, the railroads should profit.
Key global stocks CAE, CGI Group, Dorel Industries, Gildan Activewear, Magna International, Open Text Corp., ShawCor, SNC-Lavalin Group, Thomson Reuters and hold-rated Bombardier do most of their business outside Canada.
Key stocks Emera, Fortis, High Liner Foods and Stantec are building businesses in the U.S. Key stock Saputo is also growing in Asia.
Other Key stocks that do business abroad include Atco, hold-rated Barrick Gold, EnCana, Ensign Energy Services, Finning International, Hardwoods Distribution, Potash Corp., Richelieu Hardware, Stella-Jones and Teck Resources.
Wait for a loonie recovery to buy U.S. global stocks
Many Investment Reporter Canadian Key stocks give you a substantial presence abroad. You can profit from these companies for years to come.
At some point, the U.S. dollar will rediscover gravity. At that point the speculators who piled into the greenback will bail out. When the loonie gets closer to par with the U.S., then use your higher loonie to buy American multinational corporations in the consumer and manufacturing sectors.
The Investment Reporter, MPL Communications Inc.
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