The 5 Best Canadian Stocks to Own

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Canada celebrates its 145th birthday today.

Coast to coast, Canadians are celebrating with good beer, great food and close friends and family. As one of InvestorPlace‘s Canadian contributors, I wanted to celebrate in my own way by discussing five Canadian stocks to own now and through 2017, when the country’s sesquicentennial will elicit serious jubilation.

Each of the companies below is a leader in its field and is making waves outside Canada’s borders. Revenue and profit growth is essential. At the end of the day, investors in the U.S. and elsewhere should consider owning each of these stocks because they’ve performed admirably under difficult economic conditions.

Happy Canada Day!

Bank of Nova Scotia

Canadian banks have gained a well-deserved reputation in recent years for being well-run and profitable. Bloomberg News recently reported that Canada has four banks in the top 10 ranking of the World’s Strongest Banks. A big part of this success is a result of stricter government regulations and oversight than in the U.S.

That’s not to say Canadian banks don’t have flaws. It’s just that theirs are less noticeable. While the biggest bank in Canada is Royal Bank (NYSE:RY), my favorite is Bank of Nova Scotia (NYSE:BNS), which focuses on emerging markets in Latin America and Asia.

Scotiabank, as we call it up here, is building a huge business in Mexico. With 710 branches throughout Mexico and $9.4 billion in loans, it’s expanding into other Latin American countries, including Colombia, where it bought a 51% stake in Banco Colpatria for $500 million in January.

International Banking, spurred by higher growth in Latin America and Asia, saw its first-quarter net income increase by 14%, to $448 million. Scotiabank’s focus on emerging markets rather than the U.S. will continue to pay dividends for years to come.

Onex Corporation

Private equity is a big deal these days, thanks to Mitt Romney’s run for U.S. president. The soon-to-be-confirmed Republican candidate co-founded Bain Capital in 1984. Today, firms like Bain, KKR & Co. (NYSE:KKR) and Blackstone Group (NYSE:BX) are practically household names.

Private equity is so popular that there’s even an ETF that invests exclusively in these companies — PowerShares Global Listed Private Equity Portfolio (NYSE:PSP) — whose No. 1 holding as of June 27 is Onex Corporation (PINK:ONEXF). Gerry Schwartz founded Onex in the same year that Mitt got Bain Capital off the ground.

According to the Financial Post 500, Onex is Canada’s 10th-largest company, with $24.9 billion in 2011 revenue and a profit of $1.34 billion. Schwartz owns 67.8% of Onex and is Canada’s 36th-wealthiest person, with $1.6 billion.

Where Onex stands out is in its long-term stock performance. As of March 31, 2012, Onex shares have gained 2,358% over the past 20 years, compared with 420% for the S&P 500. Investing in a diverse group of companies that includes Jeld-Wen Holdings (windows), Hawker Beechcraft (aircraft) and many others, it has been able to deliver superior returns for both its limited partners and shareholders. Operating out of Toronto, it flies under the radar of many U.S. investors. It shouldn’t.

Brookfield Asset Management

When you think of the great holding companies, usually Berkshire Hathaway (NYSE:BRK.B), Loews (NYSE:L) or others come to mind. Rarely do you see Toronto-based Brookfield Asset Management (NYSE:BAM) listed among this group.

That’s O.K. with CEO Bruce Flatt, who has taken Brookfield (formerly known as Brascan) a long way since he took the reins in early 2002. One of the first things Flatt did was focus the company on three sectors: real estate, power generation and infrastructure. A value investor, Brookfield buys great assets at good prices.

When Flatt came aboard, Brooffield had assets of $22 billion, revenues of $4.7 billion and operating income of $1.8 billion. Today, it has $91 billion in assets, revenues of $15.9 billion and operating income of $6.6 billion. Over the past 10 years — since Flatt took control — Brookfield has grown in value by 20% a year and 35% annually in the last three years. Shareholders who held its stock at the beginning of 2002 and still hold it today have gains of 676%, compared with 14.7% for the S&P 500.

Brookfield’s next big move will be to spin off its income-producing property businesses into Brookfield Property Partners, which will have $72 billion in assets under administration. Like everything else Flatt has touched, this venture is sure to be a winner.

Alimentation Couche-Tard 

Longtime shareholders of the 1,700-store chain Casey’s General Stores (NASDAQ:CASY) will remember Alimentation Couche-Tard (PINK:ANCUF), the Canadian convenience-store operator that made a hostile bid for Casey’s in 2010. Couche-Tard ended its bid after Casey’s management borrowed $500 million to repurchase 25% of the outstanding shares. The move scared off Couche-Tard, but it left Casey’s with triple its previous debt.

Couche-Tard kept its nose to the grindstone for the next two years, and on June 21 of this year, it was able to announce the completion of its $2.7 billion acquisition of StatOil’s (NYSE:STO), with 2,300 gas stations and convenience stores in Scandinavia.

With Mac’s in Canada, Circle K in the U.S. and now StatOil in Europe, Alimentation Couche-Tard is now one of the biggest store operators in the world, with 8,460 stores, $34.5 billion in revenue and $1.3 billion EBITDA. CEO Alain Bouchard founded the company in 1980 with one convenience store and has been running the company brilliantly ever since. Casey’s might have won the battle, but it definitely will lose this war.

Lululemon

There are plenty of business success stories in Canada, but none is as surprising as that of Lululemon (NASDAQ:LULU), the Vancouver, B.C.-based retailer of yoga wear. Canadians traditionally aren’t good retailers. There’s only a handful of companies over the years that have been successful in the U.S. Alimentation Couche-Tard is one example, though much of its success came via acquisitions.

Meanwhile, Lululemon’s growth has been spectacular — and it doesn’t look as though it will be slowing anytime soon. Revenues in the U.S. have grown from $6.5 million in 2005 to $536.2 million in 2011. Founded in Vancouver in 1998 by Chip Wilson (Canada’s 15th-wealthiest person), LULU’s been popular with Canadians from the very start.  But given the horror stories Canadian retailers can tell about their unsuccessful forays into the U.S., it was easy for analysts to be skeptical of LULU’s growth plans.

Well, no longer. Lululemon must now be considered one of Canada’s greatest exports, with more than a billion dollars in revenue. You should continue to expect big things from CEO Christine Day and the rest of her team.

As of this writing, Will Ashworth did not own a position in any of the stocks named here. 

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.


Article printed from InvestorPlace Media, https://investorplace.com/2012/06/the-5-best-canadian-stocks-to-own/.

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