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Forget US Bank Stocks, Bet on These 5 Canadian Ones Instead
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Canada's stock index – The Toronto Stock Exchange – saw the biggest decline since February on Friday, led by the broader fall in energy stocks as the benchmark price for crude tumbled.
The S&P/TSX Composite index slipped 202.48 points, or 1.4%, to close Friday’s trading session at 14,037.54, mainly due to the 3.8% fall in the energy sector. While Canada’s main stock index declined 2.3% in just the last three days ending Friday, the benchmark had hit a 10-month high earlier in the week.
The S&P 500, weighed down by energy and financials sectors, lost 19.41 points or 0.92% to close at 2,096.07 (below the key psychological level of 2,100) on Friday. Notably, this benchmark index returned 2.55% year to date. However in comparison, the Canadian shares seemed to have booked decent gains as S&P/TSX Composite index returned a solid 7.9% year to date.
Why Should Canadian Stocks Perform Better?
While the possibility of further rate hike this year gives the U.S. banks hope of a boost in bottom line, the overall challenging environment leaves little room for offsetting the pressure. Profitability of banks continues to be limited by several issues including heightened regulations, stiff competition and increasing costs in several areas – ranging from huge legal bills for settling legacy issues to investments in updated technology and cyber-security platform.
As the U.S. stock market is likely to continue getting influenced by investors’ sentiments amid several issues including global growth concerns, renewed uncertainty over interest rate hike following dismal jobs data for May and the upcoming Brexit vote, investing in Canadian stocks should not disappoint.
Notably, during the first quarter 2016, largely driven by growth in exports, Canada’s gross domestic product (GDP) grew 0.6%, following 0.1% increase in the fourth quarter of 2015. Also, consumer demand was strong, with household consumption up 2.3%. On the industry basis, the first-quarter growth was driven by improvement in several spaces including retail sales, manufacturing, financial, oil and gas and mining, compared to the previous quarter.
On an annualized basis, the Canadian economy grew 2.4% in the first quarter, compared to just 0.8% in the U.S.
Further, according to Statistics Canada, the economy created 14,000 jobs during May. With fewer people looking for work, the unemployment rate fell 0.2% points to 6.9%, marking the lowest rate since last July.
While the Canadian economy is still grappling with volatility in weak energy sector, the strength in exports and consumer spending should continue providing it support. Additionally, the fiscal stimulus measures unveiled earlier this year by Canada's new Liberal government should aid growth prospects of the nation.
Amid such backdrop, we suggest investors to readjust the investment portfolio to include certain Canadian stocks that currently look attractive.
Stocks to Buy
While the task of selecting such stocks may seem quite difficult, our Zacks Stock Screener makes it easier.
We have shortlisted five stocks with a market capitalization of more than $30 billion and sporting a Zacks Rank #1 (Strong Buy) or #2 (Buy). Additionally these stocks have dividend yield north of 3%.
Royal Bank of Canada (RY - Free Report) : As one of largest banks in Canada, the company provides diversified financial services, along with personal and commercial banking, wealth management, insurance, investor services and capital markets products and services on a global basis. It operates through offices in Canada, the U.S. and 37 other countries.
Zacks Rank #2, Dividend yield: 4.05%
Canadian Imperial Bank of Commerce (CM - Free Report) : As a leading financial institution, the company operates through three main business wings – Retail and Business Banking, Wealth Management and Capital Markets, providing an array of financial products and services in Canada and around the world.
Zacks Rank #1, Dividend yield: 4.33%
The Bank of Nova Scotia (BNS - Free Report) : The company provides a varied range of financial products and services, including personal and commercial banking, wealth management and private banking, corporate and investment banking in Latin America, the Caribbean, Central America, and Asia.
Zacks Rank #2, Dividend yield: 4.33%
Bank of Montreal (BMO - Free Report) : The company, as a highly diversified financial services provider, serves more than 12 million personal, commercial, corporate and institutional customers in North America and internationally. It has three operating groups – Personal and Commercial Banking, Wealth Management and BMO Capital Markets.
Zacks Rank #1, Dividend yield: 3.97%
The Toronto-Dominion Bank (TD - Free Report) : The company together with its subsidiaries offers a wide range of financial products and services to more than 24 million customers globally. The company operates through three key business lines: Canadian Retail, U.S. Retail and Wholesale Banking.
Zacks Rank #2, Dividend yield: 3.80%.
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Forget US Bank Stocks, Bet on These 5 Canadian Ones Instead
Canada's stock index – The Toronto Stock Exchange – saw the biggest decline since February on Friday, led by the broader fall in energy stocks as the benchmark price for crude tumbled.
The S&P/TSX Composite index slipped 202.48 points, or 1.4%, to close Friday’s trading session at 14,037.54, mainly due to the 3.8% fall in the energy sector. While Canada’s main stock index declined 2.3% in just the last three days ending Friday, the benchmark had hit a 10-month high earlier in the week.
The S&P 500, weighed down by energy and financials sectors, lost 19.41 points or 0.92% to close at 2,096.07 (below the key psychological level of 2,100) on Friday. Notably, this benchmark index returned 2.55% year to date. However in comparison, the Canadian shares seemed to have booked decent gains as S&P/TSX Composite index returned a solid 7.9% year to date.
Why Should Canadian Stocks Perform Better?
While the possibility of further rate hike this year gives the U.S. banks hope of a boost in bottom line, the overall challenging environment leaves little room for offsetting the pressure. Profitability of banks continues to be limited by several issues including heightened regulations, stiff competition and increasing costs in several areas – ranging from huge legal bills for settling legacy issues to investments in updated technology and cyber-security platform.
As the U.S. stock market is likely to continue getting influenced by investors’ sentiments amid several issues including global growth concerns, renewed uncertainty over interest rate hike following dismal jobs data for May and the upcoming Brexit vote, investing in Canadian stocks should not disappoint.
Notably, during the first quarter 2016, largely driven by growth in exports, Canada’s gross domestic product (GDP) grew 0.6%, following 0.1% increase in the fourth quarter of 2015. Also, consumer demand was strong, with household consumption up 2.3%. On the industry basis, the first-quarter growth was driven by improvement in several spaces including retail sales, manufacturing, financial, oil and gas and mining, compared to the previous quarter.
On an annualized basis, the Canadian economy grew 2.4% in the first quarter, compared to just 0.8% in the U.S.
Further, according to Statistics Canada, the economy created 14,000 jobs during May. With fewer people looking for work, the unemployment rate fell 0.2% points to 6.9%, marking the lowest rate since last July.
While the Canadian economy is still grappling with volatility in weak energy sector, the strength in exports and consumer spending should continue providing it support. Additionally, the fiscal stimulus measures unveiled earlier this year by Canada's new Liberal government should aid growth prospects of the nation.
Amid such backdrop, we suggest investors to readjust the investment portfolio to include certain Canadian stocks that currently look attractive.
Stocks to Buy
While the task of selecting such stocks may seem quite difficult, our Zacks Stock Screener makes it easier.
We have shortlisted five stocks with a market capitalization of more than $30 billion and sporting a Zacks Rank #1 (Strong Buy) or #2 (Buy). Additionally these stocks have dividend yield north of 3%.
Royal Bank of Canada (RY - Free Report) : As one of largest banks in Canada, the company provides diversified financial services, along with personal and commercial banking, wealth management, insurance, investor services and capital markets products and services on a global basis. It operates through offices in Canada, the U.S. and 37 other countries.
Zacks Rank #2, Dividend yield: 4.05%
Canadian Imperial Bank of Commerce (CM - Free Report) : As a leading financial institution, the company operates through three main business wings – Retail and Business Banking, Wealth Management and Capital Markets, providing an array of financial products and services in Canada and around the world.
Zacks Rank #1, Dividend yield: 4.33%
The Bank of Nova Scotia (BNS - Free Report) : The company provides a varied range of financial products and services, including personal and commercial banking, wealth management and private banking, corporate and investment banking in Latin America, the Caribbean, Central America, and Asia.
Zacks Rank #2, Dividend yield: 4.33%
Bank of Montreal (BMO - Free Report) : The company, as a highly diversified financial services provider, serves more than 12 million personal, commercial, corporate and institutional customers in North America and internationally. It has three operating groups – Personal and Commercial Banking, Wealth Management and BMO Capital Markets.
Zacks Rank #1, Dividend yield: 3.97%
The Toronto-Dominion Bank (TD - Free Report) : The company together with its subsidiaries offers a wide range of financial products and services to more than 24 million customers globally. The company operates through three key business lines: Canadian Retail, U.S. Retail and Wholesale Banking.
Zacks Rank #2, Dividend yield: 3.80%.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>