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Friday August 20, 2010
Three buys for a Canadian portfolio
by Peter Krauth, contributing editor Money Morning  Canada right now boasts one of the world's most compelling targets for investors' hard-earned money. Here, we review three ways to play Canada: CurrencyShares Canadian Dollar Trust (FXC), the Royal Bank of Canada (RY), and Enbridge (ENB). Consider that: * Through 2008, Canada enjoyed 12 straight years of budget surpluses. * Since the outset of the global financial crisis, not a single Canadian bank failed. * Canada was the first G-7 nation to raise interest rates. * And while Canada has already reaped the benefits of a full 10 years worth of a full-blown bull market in commodities, there are at least 10 years more to go. If the safety of a nation's banks is an indication of its economic well being, then Canada gets a clean bill of health, without the need for stress tests. The World Economic Forum has ranked Canada's banking system as the world's safest. The U.S. banking system, by comparison, was ranked 40th. 
Clearly, Canada is a winner. But how should investors play it? My first suggestion is to consider the loonie, as the Canadian dollar is affectionately known. Back in 2002, the loonie bought as little as USD $0.62. Money flows where it's treated best, and the massive-and-growing debt loads being carried by the United States doesn't portend well for the U.S. dollar's long-term prospects - or for the European euro, for that matter. In Canada, by contrast, we see rising interest rates, sounder fiscal management, and a massive hoard of resources to back it all. Given that, the Canadian loonie is set to take flight, or at least maintain its cruising altitude. The easiest way to play the Canadian dollar is the CurrencyShares Canadian Dollar Trust. Even some central banks, like Russia's, have indicated they're shifting cash reserves toward the loonie. Maybe you should, too. The Royal Bank of Canada was founded as a private commercial bank in 1864 in Halifax, Nova Scotia and has paid a common-stock dividend every year since 1870. Today, it is Canada's largest bank. Royal currently sports a reasonable Price/Earnings (P/E) ratio of 14, and a dividend yield of 3.7%. Enbridge is one of Canada's most powerful energy plays. The company is a leader in North American energy transportation, owning and operating the longest crude oil and liquids transportation network. The firm also owns and operates the largest natural-gas distribution company in Canada. Holdings extend into northern New York State, and include transmission-and-gathering pipelines in the Gulf of Mexico. With a market cap of $18 billion, a P/E near 14, and a 3.4% yield, Enbridge makes for a great play on higher energy prices, and possesses the "wild-card" potential to lever up on access to voracious demand for energy in Asia. Overall, Canada needs to be front-and-center in your investments. We see major potential payoff for those who invest in Canada right now. So consider the CurrencyShares Canadian as a currency play, and the Royal Bank of Canada as a way to profit from the world's "safest" banking system. Finally, look carefully at Enbridge as a global profit play on energy, and as a proxy for the higher oil and energy prices that are certain to come. Learn more about this financial newsletter at Money Morning. |
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