Investment Opportunities in the Great White North

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Investment Opportunities in the Great White North

Sometimes the best value and growth plays are based in countries thousands of miles away, in what many consider exotic locations.

These overseas investments have to be very compelling for investors to take the plunge, especially when they don’t know much about the culture, language, politics, and economy of the places, where some of these companies are based.

So if you’re new to international investing or are reluctant to invest in Asia or other emerging markets, I recommend looking north . . .

America’s Northern Neighbor

Growing up in Wisconsin, Canada was right next door.

And although it’s our neighbor, you may not know some of these interesting facts about Canada.

• About 20% of Canadians were born outside of Canada.
• About 90% of Canadians live within 100 miles of the U.S.-Canadian border.
• Canada has a population smaller than that of Tokyo.
• Canada is America’s largest export market – we sold $280 billion worth of goods and services to Canadian consumers in 2015.
• Approximately 20% of the world’s fresh water is in Canada, and the country has the highest number of lakes in the world.
• The U.S.-Canadian border is the longest international border in the world.
• Canada has the longest coastline compared to any other country.
• The Canadian Mint has created a coin with a $1 million face value.
• Canada is the most highly-educated country in the world – 50% of the population has college degrees.
• Basketball was invented in Canada.
• Canada is larger than America and is the second-largest country in the world.

Most notably, Canada ranks higher than America on the economic freedom index, and is a considered a premier safe haven for investors in times of global uncertainty.

Now is a great time for value investors to explore Canada given the pullback in resource prices, and the weakness in the Canadian dollar – better known as the loonie.

Fortunately, both of these have begun an uptrend.

One of my favorite Canadian resource plays is Silver Wheaton Corp. (SLW), and this company has already bounced 50% from its 52-week lows and is up 32% in 2016.

Canada’s economy has an unusually large resource sector, which includes energy, agriculture, forestry, fishing, and mining.

All of these areas are attractive right now, but getting the timing right is tricky. So why not invest in a company that transports all the things?

A nice proxy for the uptick in all of these areas is the Canadian National Railway Company (CNI), a solid transport play that has 20,000 miles of track connecting markets spanning the Pacific, Atlantic, and the Gulf of Mexico.

Canadian National is a well-diversified, well-run railway able to make money, and reward investors even in a tough economic environment.

In 2015, traffic dropped 2%, but the company was able to produce positive operating and net income growth of 14% and 12%, respectively. From 2000 to 2015, Canadian Railway’s earnings grew by 12.8% on average, and its dividend per share increased by 16.9% on average.

The stock is up 11.8% in 2016, while the S&P 500 Index is flat as a pancake.

Importantly, CNI has increased its dividend for 20 years in a row, and over the past five years, it averaged an annual dividend growth of 18.3%.

Another nice proxy for the rebound in the Canadian economy is the banking sector. One of my favorites here is the Bank of Montreal (BMO).

This stock has a tremendous long-term dividend record, paying out more than 40% of annual earnings for over a century and a half. Bank of Montreal currently offers a dividend yield of 4.2%, is trading at 1.3 times break up value, and is trading at just 11 times projected 2016 earnings.

Canada is up 9% so far in 2016, while the S&P 500 has eked out a meager 1.2%. This represents one more reason why you need to diversify your portfolio to international markets.

Good investing,

Carl Delfeld

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By Carl Delfeld