After several rounds of negotiations between the United States and Canada to redraw the NAFTA deal by ironing out the trade-related disputes at the higher levels, both the parties failed to reach a consensus by the Friday deadline. As the talks ended in a stalemate, President Trump upped the ante by threatening to dump the tripartite trade agreement and script a bilateral trade deal with Mexico, forcing Canada to either mend its ways or accept the shift in trade dynamics.
To that end, Trump formally notified the Congress of his intentions to ink the new NAFTA deal with or without Canada within a 90-day period. Although the trade talks are likely to resume on Wednesday, Canada has voiced its dissent against the unrelenting pressure tactics of the United States and made it clear that it would not sign a deal unless it is beneficial for its citizens.
As the trade skirmishes are likely to continue until any of the warring nations relents, investors could benefit from certain Canadian stocks that have solid fundamentals to reap healthy return on investments. Before we handpick such stocks, let us dig a little deep into the issue to get a fair idea of the situation.
U.S.-Canada Trade Spat
Canada has close trade ties with its neighbor with interwoven economies and integrated supply chains. The value of goods and services sold between the two countries reportedly totaled $673.1 billion last year, largely benefiting from NAFTA, thus making it the largest export market for the United States. However, Trump believed that the regional trade agreement incentivized U.S. companies to move jobs to lower-wage countries like Mexico and harmed domestic job creation. He also increased his tirade against Canada from last year and accused its government of unfairly supporting the dairy industry.
In order to force the neighboring country to offer trade concessions, Trump further imposed tariffs on steel and aluminum imports from Canada. Moreover, he has made public his intentions to extend similar tariffs to all automobiles and auto part exports from the Great White North, expecting to increase economic pressure to force its Prime Minister Justin Trudeau to capitulate.
On its part, Canada retaliated with its own set of tariffs on U.S. goods. However, as United States reached an agreement with Mexico to resolve its trade disputes, the onus shifted back to Canada to reengage in talks to protect its own interests and prevent alienation within the region.
Canada Forced to Negotiate Due to Mexico Deal
As the regional trade fulcrum shifted more toward the growing supremacy of the United States, Canada was forced to join the negotiation table. Both the parties were reportedly within striking distance of a deal. However, differences relating to the U.S. demands over dairy policy and patent protections for pharmaceutical industry annulled the settlement process.
With Trump remaining hell-bent to rework NAFTA to give more impetus to domestic manufacturing industries, Trudeau has little choice. Experts widely believe that if he pulls out from the negotiation table until the United States offers acceptable terms and concessions, he could jeopardize the country’s economy in a spiraling brawl with the unpredictable Trump. Moreover, it remains fairly unclear about how Mexico would react to the proposition of a bilateral trade agreement, replacing the age-old tripartite deal.
4 Canadian Stocks to Benefit
Amid such volatile market condition, we have handpicked four top-ranked Canadian stocks that will likely add a sparkle to your portfolio. These companies currently carry a Zacks Rank #1 (Strong Buy) or 2 (Buy) and flaunt a VGM Score of A or B. Also, the stocks have witnessed positive earnings estimate revisions for the past 60 days.
North American Construction Group Ltd. NOA: This heavy construction and mining services provider has VGM Score of A and Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here. The Zacks Consensus Estimate for 2018 earnings has moved up 84% to 46 cents per share in the past 60 days. Shares of this company have appreciated 87.8% in the past year.
Mountain Province Diamonds Inc. MPVD: This diamond exploration firm has Zacks Rank #2 and VGM Score of A. The Zacks Consensus Estimate for 2018 earnings has moved up 280% to 18 cents per share in the past 60 days.
Gran Tierra Energy Inc. GTE: This oil and gas exploration firm has Zacks Rank #2 and VGM Score of B. The Zacks Consensus Estimate for 2019 earnings has moved up 17.2% to 34 cents per share in the past 60 days. Shares of this company have appreciated 65.9% in the past year.
EXFO Inc EXFO: This telecommunication component provider has Zacks Rank #2 and VGM Score of B. The Zacks Consensus Estimate for 2018 earnings has moved up 6.3% to 17 cents per share in the past 60 days. Shares of this company have appreciated 25.8% in the past three months.
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