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The word to American investors — buy Canadian

A leading U.S. advisory reveals its top foreign stocks for U.S. — almost half are from Canada, including the stock at the top of the list.

There are no Canadian teams left in the Stanley Cup playoffs (in case you hadn’t noticed), but we have a comeback for that. The best foreign stock for U.S. investors is Canadian.

This may be no consolation to fans in Ottawa, Calgary and Montreal, but it’s good news for a group of Canadian shareholders. A prominent American advisory, Dow Theory Forecasts, has released a list of the 25 best foreign stocks trading in the U.S. A dozen of them are Canadian, including the advisory’s most highly rated foreign stock for U.S. investors.

When Canadian stocks get a rousing recommendation from a top U.S. publication, the extra attention is bound to bring benefits to the stock and its shareholders.

But without further ado, let us reveal the name of the Canadian stock that ought to be number one on every American investor’s list of non-American stocks to buy.

From John Hancock to Asia

Manulife Financial (TSX/NYSE-MFC) undoubtedly catches the attention of U.S. observers because it is also John Hancock. It has been operating the giant American insurance firm for four years now. Although a strong loonie causes some conversion problems, Hancock is a high quality company that generates steady sales growth.

But Asia is the key to growth, the advisory states in no uncertain terms. While Canadian business represents 28 per cent of Manulife’s revenue, and John Hancock’s sales grow by single-digit rates, Asian sales grew by 15 per cent last year.

The company has been in Asia since it set up shop in Hong Kong 11 years ago. Now it is in the Philippines, Singapore, Indonesia, Taiwan, China, Japan, Vietnam, Malaysia and Thailand.

Manulife’s earnings-per-share growth is expected to rise 12 per cent in 2008 and 15 per cent in 2009. And it is trading at just 13 times 2008 earnings. The advisory recommends it for purchase now.

In fact, Manulife is the first of five foreign stocks that the advisory highlights as having the greatest immediate appeal for U.S. investors — including one more Canadian stock.

Consulting, outsourcing and Cirque du Soleil

CGI Group (TSX-GIB.A; NYSE-GIB) may not have the name recognition of Manulife, but it’s well known in business and government offices across North America. Headquartered in Montreal, it’s an information technology firm that covers a whole range of consulting and outsourcing services like payroll and document management.

59 per cent of CGI’s business is in Canada and 33 per cent in the United States, but it’s following the contemporary path to success as it moves into Europe and Asia.

In the March quarter alone, CGI booked $1.1 billion in new contracts, renewals and extension, raising its backlog to more than $12 billion, about 3.2 times annual revenue. Its per-share earnings should rise to $0.83 this year and $0.91 in 2009. Oh, and it also sponsors Cirque du Soleil.

Dow Theory Forecasts does not follow this stock regularly, but informs us that its sister publication Upside rates it a buy.

In the interests of international co-operation, here are the other three stocks in the top five: the world’s largest steelmaker, ArcelorMittal (NYSE-MT) of Luxembourg; engineering and construction firm Chicago Bridge and Iron (NYSE-CBI), founded in the Windy City, but now in the Netherlands; and Brazilian metal giant Vale (NYSE-RIO), which you will probably recognize as the company that bought Inco.

Of greater interest to us are the other 10 Canadian stocks that make this elite list.

10 more Canadian stocks

One of these stocks may seem like a curious choice: BCE Inc. (TSX/NYSE-BCE). The advisory makes no comment on the stock. But its fundamentals remain sound, and U.S. investors, like their Canadian counterparts, may wish to speculate on the gap between the current share price and the stated takeover price when the company goes private.

It’s joined by three other stocks in the world of communications — Telus (TSX-T; NYSE-TU), Sierra Wireless (TSX-SW; NASDQ-SWIR) and a lesser-known entry, EXFO Electro Optical (TSX-EXF; NASADQ-EXFO) of Quebec City, a test and measurement expert in telecommunications.

It should be no surprise that energy stocks are well represented. Nexen Energy (TSX/NYSE-NXY), Petro-Canada (TSX-PCA; NYSE-PCZ) and Talisman Energy (TSX/NYSE-TLM) are all here.

The final three Canadians on the list all have high Quadrix ratings, but are rated Neutral for buying by the advisory just now. They are Manulife’s competitor, Sun Life (TSX/NYSE-SLF), Canadian National Railway (TSX-CNR; NYSE-CNI) and Teck Cominco (TSX-TCK.B; NYSE-TCK).

The world sneezes

All of the stocks on the advisory’s list of best foreign stocks have two things in common. First, they are all easily available to U.S. investors, trading on the major New York exchanges.

Second, they all score highly in the advisory’s Quadrix® rating system, which has evolved from the original market theories of Mr. Charles Dow, the founder of the service. It measures Momentum, Quality, Value, Financial Strength, Earnings Estimates, and Performance.

In applying these benchmarks to foreign stocks, the advisory was also asking the question: “Had we seen the end of the days when the world caught a cold every time America sneezed?”

The answer is, not really. America makes up a smaller percentage of the world economy these days, and the correlation between U.S. markets and those of other developed economies has decreased over the past two years. Nonetheless, notes the advisory, 19 of 20 foreign regional indexes have shown a decline as the financial crisis has dragged on.

Still, foreign stocks offer excellent diversification in a U.S. equity portfolio, says the advisory. “Even the stock markets in developed economies do not move in lock step with U.S. stocks, and emerging-markets often diverge drastically.”

Which makes it interesting that almost half of the stocks in this list are from Canada, the economy that would seem to be the closest to a “lock-step” relationship with the U.S.

But these are fundamentally healthy companies. They may sneeze, but they won’t catch their death. As all Americans know, a little cold doesn’t bother Canadians.