The Canadian economy has had a rough start this year. It had technically fallen into a recession in the first half of the year. Per Statistics Canada, the nation’s GDP shrank 0.5% during second-quarter 2015 following a 0.8% retreat in the previous three months. Canada, like many other resource-dependent nations, has felt the heat of low commodity prices and slowdown in economies like China.
The Canadian dollar also weakened substantially with the plunge in crude prices. The currency recently fell to an 11-year low against the U.S. dollar. Canada’s trade deficit has also widened significantly. Total exports declined 3.6% in August; the energy sector led the way with a nearly 15% decline. The bearishness affected stock markets as well, resulting in sharp sell-offs.
However, the markets have seen some improvement of late. The recovery in commodity prices, though slow, is boosting investor confidence. Last week, in fact, was the best one so far this year for the Toronto Stock Exchange – the main trading platform for Canadian stocks. The index gained over 400 points last week despite recording a small loss on Friday. The Energy and Material sectors make up about 20% and 10%, respectively, on the Toronto Stock Exchange.
Crude prices have recovered from the below-$40 per barrel level and is currently trading near the psychologically important $50 level. Slowdown in the commodity’s production as a result of investment cuts and decline in operating rigs have led to the price increase.
There have been favorable developments across other commodity markets as well. The December contract for gold increased by $11.60 to US$1,155.90 an ounce, while copper prices for the same period rose 7 cents to US$2.41 a pound.
Key Stock Picks
Though the future of the Canadian economy remains uncertain in the current macroeconomic condition, we bring to your notice five stocks that are expected to remain strong through this downturn. These Canadian stocks have a favorable Zacks Rank #1 (Strong Buy) or #2 (Buy), which is indicative of their strong fundamentals.
NovaGold Resources Inc. NG is an explorer and developer of mineral properties based in Canada and the U.S. The Vancouver, Canada-based firm primarily explores gold, silver, and copper deposits.In the last reported quarter, the company beat the Zacks Consensus Estimate by a penny. Upward estimate revisions for both the current quarter as well the current year suggest further bullishness ahead. This Zacks Rank #1 stock is also expected to deliver year-over-year growth of 15.4%. This is a significant positive given that the industry is expected to witness a decline of 9.7%.
Asanko Gold Inc. AKG, which is also based in Vancouver, explores and develops gold. The firm holds a Zacks Rank #2 as well as a favorable Growth Score of ‘B’. In terms of earnings, the company surpassed the Zacks Consensus Estimate in the last reported quarter. It is expected to perform well in future too, as is indicated by the upward revision of its current quarter as well as full-year earnings estimates. Asanko Gold is also expected to deliver solid year-over-year earnings growth of about 43%.
Another Vancouver-based firm, Endeavour Silver Corp. EXK, is also a favorable pick. The company, which holds a Zacks Rank #2 and a growth style score of ‘B’, produces silver-gold from its mines. On the earnings front, the company handily beat the Zacks Consensus Estimate by a massive 80% in the last reported quarter. Moreover, Endeavour is anticipated to deliver year-over-year earnings growth of about 3%. This is also favorable with the possibility of the industry average declining about 5%.
Suncor Energy Inc. SU, based in Calgary, Alberta, is Canada’s premier integrated energy company. Suncor's operations include oil sands development and upgrading, conventional and offshore crude oil and gas production, petroleum refining, and product marketing. It has an impressive portfolio of growth opportunities, a unique asset base and high return potential for the long run. The Zacks Rank #2 firm also performed well on the earnings front and has a four-month average positive surprise of 13.2%.
Precision Drilling Corporation PDS is an oil and natural gas drilling and services provider based in Calgary. The company operates through two of its segments, Contract Drilling Services and Completion and Production Services. The Zacks Rank #2 stock had reported strong earnings that beat the Zacks Consensus Estimate in two consecutive quarters. Also, Precision Drilling carries a favorable Value as well as Momentum style score of ‘A’.
Don’t Throw Caution Away
Though the recent increase in commodity prices boosted Canadian stocks, the rally is unlikely to sustain unless broader economic conditions improve. Having said that, companies with strong fundamentals always remain in favor and make safer bets in uncertain times like these.
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