True North and Down Under — 8 stocks for growth and safety
For the best of both worlds, says this U.S. advisory, you can have growth and safety with resource stocks from Canada and Australia.
“Thank goodness for Canada and Australia.”
What makes these countries worthy of such praise? It’s not their World Cup performances — Australia is out and Canada was never in.
Both nations certainly get high marks for natural beauty. But the statement we quote here is first and foremost a call to investors.
If you’re looking for growth and safety, Canada and Australia are the places to be, says Mr. Stephen Leeb, editor of The Complete Investor.
Because they are both rich in resources and already developed nations, they offer the best of both worlds, says this American observer.
And he’s not skimping on stock recommendations from the two countries. He has four buys from each.
Two exceptional countries
For the past decade, says the editor, “growth has pointed largely to the developing world, whose economies have dramatically outperformed those of the developed world.”
The main reason for this has been the increasing scarcity, and rising prices, of natural resources. In effect, this operates as a tax on the consuming countries and a boon for commodity producers, most of which are in up-and-coming nations.
And while this advisory does advise investing in some commodities from nations like China and Brazil, these investments still come with built-in risk. Analysts call it “political risk.” The rules of engagement could still change in these jurisdictions, leaving investors holding the bag.
“That’s why we’re also big fans of investments in two exceptional developed countries: Canada and Australia,” states Mr. Leeb.
You get abundant natural resources with time-tested political systems, he says. “Given their natural resource base, it’s not surprising that over the past decade they have grown faster than other developed countries.”
Of course the GDP per capita of Canada and Australia is well ahead of that of developing nations, so you don’t get the same rate of growth. Still, you can find stocks with high growth rates if you select carefully.
On the other hand, political risk can show up in the strangest places — as with Australia’s recent proposal to crank up taxes on mining (see Daily Buy-Sell Adviser, May 11).
But now it’s time to select carefully, beginning with four Canadian stocks — two of which have never drilled or mined for anything.
Outshines its competitors
This advisory starts by getting commodities from place to place. Canadian National Railway (TSX-CNR; NYSE-CNI) is Canada’s largest railroad by far and second in North America only to Burlington Northern, now the property of Mr. Warren Buffett.
Like Burlington, Mr. Leeb writes, CN is tied to commodities and exports. It also has a close relationship with rising oil prices. This helps in two ways — it increases the value of its cargo, and it makes rail transport more economical as fuel prices go up for trucks.
“Canadian National outshines its competitors by every key metric,” says the editor, “including return on equity, operating margins, and long-term growth, which should be in at least low double digits.”
CN should easily beat the S&P 500 Index, he adds. It is trading at $60.73 and yielding 1.7 per cent on its dividend of $1.08.
Toronto-Dominion Bank (TSX/NYSE-TD) is no commodity stock, either, but it certainly benefits from Canada’s growth. It has the best risk-reward profile of any Canadian bank, says Mr. Leeb. He also thinks it is the only Canadian banks that can sustain double-digit growth.
It has a higher ratio of equity to total assets (i.e., less debt), which means it can buy back shares sooner and make strategic acquisitions. It is ahead of the game on asset management, too, says the editor, thanks to TD Waterhouse, Canada’s biggest online broker.
Not least, he likes TD’s sturdy 3.5 per cent yield on the $2.44 dividend. The stock is actually undervalued, he says, as it trades at $69.12.
Big long-term winners
Mr. Leeb completes his tour of Canadian stocks with fertilizer. Potash Corp. of Saskatchewan (TSX-NYSE-POT) is an obvious choice as the biggest in its field, despite the volatility of the shares.
At $92.78, Potash is trading at more than $35 below its 52-week high, yielding 0.4 per cent on the 41-cent dividend. But it comes close to dominating its industry, says the editor, along with his other fertilizer pick.
Mosaic (NYSE-MOS) is actually located in Minnesota (which is almost like Canada), but it pays a lot of salaries in Saskatchewan, thanks to its big potash mine near Esterhazy. This stock is also well below its high with a $39.54 price tag, and yields 0.5 per cent on its 20 per cent dividend.
Volatile as these two stocks are, they should be “big long-term winners,” insists Mr. Leeb.
Australian buys
We’ll conclude with a brief look at the Australian stocks on the advisory’s buy list. BHP Billiton (NYSE-BHP) is the world’s single biggest mining stock.
It’s not getting any favours from the mining tax, but it “remains our choice as a core holding in any commodity portfolio,” states Mr. Leeb. It trades at $63.53 and yields 2.5 per cent on a $1.68 dividend.
Big gold miner Newcrest Mining (OTC-NCMGY) must face the tax as well, “but the company’s prospective acquisition of a another major miner will add to its stakes outside Australia,” writes the editor. The shares are at $30.10, yielding 0.13 per cent on a dividend of $0.04.
He particularly likes Origin Energy (OTC-OGFGF), which is one of the most diversified energy companies in the world. It has drilling projects throughout Southeast Asia, but it also has stakes in wind and solar power and natural gas, which it astutely supplies to its own electrical utilities.
Long-term growth could easily exceed 15 per cent a year over the next decade, says the editor. The stock trades at $13.06 and yields over 3 per cent on its dividend of $0.25.
Finally, we get another bank. Commonwealth Bank of Australia (OTC-CBAUF) is the strongest financial franchise in the country. It is strong in stock brokerage, home and personal loans and asset management.
It is, in short, “one of the surest plays on the growing Australian economy,” says Mr. Leeb in conclusion. The shares stand at $45.85 and yield a rich 4.7 per cent on a dividend of $2.25.
Growth and safety have been in rather short supply lately. There’s no reason Canada and Australia shouldn’t step up and offer both. Eh, mate?
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