Canadian Stocks: Make Money in Them the Easy Way

You can diversify your portfolio with sturdy Canadian stocks.

Feb 4, 2014 at 5:18PM

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some Canadian stocks to your portfolio but don't have the time or expertise to hand-pick a few, the iShares MSCI Canada ETF (NYSEMKT:EWC) could save you a lot of trouble. Instead of trying to figure out which Canadian stocks will perform best, you can use this ETF to invest in lots of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. This ETF, focused on Canadian stocks, sports a relatively low expense ratio -- an annual fee -- of 0.51%.

This Canadian-stocks ETF has lagged its benchmark by a bit over the past five and 10 years. As with most investments, of course, we can't expect outstanding performances in every quarter or year, and the future does count more than the past. Investors with conviction need to wait for their holdings to deliver.

Why Canadian stocks?
It's smart to have a geographically diversified stock portfolio, and this ETF easily gives you exposure to a range of Canadian stocks. You can invest in the ETF itself, or you might just scan its holdings for investment ideas. Canada is the world's second-largest country, after Russia, in terms of square miles, and it's rich in natural resources -- it's the top source of many. It boasts a solid banking system and ample regulatory oversight, too.

More than a handful of Canadian stocks saw poor or lackluster performances over the past year, with some low prices offering attractive entry points for investors. Teck Resources Ltd. (NYSE:TCK), for example, sank 33% and yields 3.5%. The miner has been challenged by falling prices for metallurgical coal, which has been shrinking its profit margins. Teck is realizing some significant cost savings simply by having its workers not leave truck engines idling. It's also investing in mining oil from Canadian oil sands, which might deliver future profits.

Fertilizer giant Potash Corporation (NYSE:POT) dropped 24%, in part due to an oversupply in the market and the breakup of a key Russian cartel (now seemingly repaired). PotashCorp is yielding 4.8%, and its dividend has been increased aggressively over the past few years. The company's last quarter wasn't strong (because of "pricing headwinds," among other factors), and while its long-term promise is intact, short-term concerns remain, such as falling margins. Demand from China is a plus, though, and some see the low-cost producer as having fallen enough to now be attractively priced. Indeed, TD Securities recently upgraded the stock to a buy.

Other Canadian stocks didn't do quite as poorly over the last year, but they could see their fortunes change in years to come. Suncor Energy (NYSE:SU) gave up 3%, yields 2.3%, and has been increasing its dividend aggressively -- though it's also paying out more of its free cash flow than some would like to see. Canada's largest energy company, Suncor, has been shifting its focus from low-priced natural gas to more profitable oil and is also investing significantly in renewable energies. Its integrated business model is boosting the profitability of its oil sands production, but it may be somewhat hurt if some sizable proposed pipelines aren't built.

Encana Corporation (NYSE:ECA) also shed 3% and yields 1.6%. The Canadian natural-gas giant has been busy cutting costs -- by reducing its workforce and shrinking its dividend by 65%, among other things. It's also looking into selling off its billion-dollar Deep Panuke gas project. Encana plans to focus on five key areas, including the Gulf Coast's promising Tuscaloosa Marine Shale region.

The big picture
If you're interested in adding some Canadian stocks to your portfolio, consider doing so via an ETF. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.

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Selena Maranjian, whom you can follow on Twitter, has no position in any stocks mentioned. The Motley Fool owns shares of PotashCorp. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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