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4 Stocks to Tap the Rebound in Canadian Economy

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After a lull in the first quarter, the Canadian economy is showing signs of firming up. Data released on Friday for retail sales and inflation came in favorable.

Additionally, a good employment picture and strong wage growth offer investors a solid backdrop for investing in a growing economy.

Retail Sales Continue to Increase

Retail sales data released last Friday showed an increase for the third consecutive month in March, with a 0.6% rise to $50.2 billion, per Statistics Canada. Higher sales at motor vehicle and parts dealers more than offset lower sales at food and beverage stores and gasoline stations.

Sales were up in six of 11 subsectors, representing 53% of retail trade. The strength in retail sales points to solid demand in the economy.

Inflation Within Range

The annual inflation rate in Canada eased to 2.2% in April 2018 from 2.3% in March and was below market expectations of 2.3%. With the inflation rate staying within the desired range, rates hikes will be gradual. Per the bank’s last rate decision on Apr 18, officials are still in no rush to thwart the current expansion with aggressive rate hikes.

Unemployment Rate at Record Lows

The unemployment rate in Canada remained unchanged at 5.8% in April 2018 from the previous month and in line with market expectations. The jobless rate was at its lowest level since 1976 for the third consecutive month. Employment declined by 1,100, well below the expected 17,400 gain, mainly due to job losses in wholesale and retail trade and in the construction sector.

Wage Growth

A report by TD Economics stated that April was the fourth month of above 3% wage gains. The breadth seen was encouraging, as 11 of 16 major industries reported wage gains above the 3% mark, rising to 13 of 16 in the weekly wage data.

Strong employment and wage growth should provide further support to consumption and fuel demand for various goods and services, thus increasing economic activity and supporting growth.

Growth Outlook for Quarters Ahead

The National Bank of Canada, in one of its recent reports, stated that growth should return in the second and the third quarters after soft first-quarter growth which is expected to have been below 2%. (First-quarter GDP numbers will be released on May 31). The headwinds of the first quarter such as plant shutdowns in the auto sector and disruptions to pipeline operations in the energy sector, temporarily restrained the goods sector output. So exports should reverse and turn into tailwinds later in the year.

But because of soft landing in the first quarter, the country’s GDP growth outlook for 2018 has been revised down to 2.2%. Nevertheless, the economic indicators overall paint a good picture of the country’s economic growth.

Stocks to Invest

Though uncertainty around headwinds to growth from a slowing housing market and NAFTA linger, the latest data provide enough reasons to keep intact investors’ confidence in the country’s economy.

Therefore, we have selected four stocks that should provide a good investment opportunity. These stocks also flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Methanex Corporation (MEOH - Free Report) produces and supplies methanol in North America, the Asia Pacific, Europe and South America.

This Vancouver-based company has a Zacks Rank #2. It has expected earnings growth of 27.6% for the current year, higher than the industry’s projected growth of 17.8%. The Zacks Consensus Estimate for the next year has improved 6.5% over the last 30 days.

Magna International Inc. (MGA - Free Report) is a supplier of original equipment components, assemblies, modules and systems and related tooling for cars and light trucks.

This Aurora-based company has a Zacks Rank #2. The company has expected earnings growth of 17.3% for the current year, higher than 16.8% for the industry. The Zacks Consensus Estimate for the current year has improved 4% over the last 30 days.

Waste Connections, Inc. (WCN - Free Report) is an integrated solid waste services company. It provides waste collection, transfer, disposal and recycling services in exclusive and secondary markets.

This company with operations in Canada has a Zacks Rank #2. The company has long-term expected earnings growth of 13.3%, whihc is higher than the industry’s expected growth of 12.8%. The Zacks Consensus Estimate for the current year has improved 1.6% over the last 90 days.

Novanta Inc. (NOVT - Free Report) deals in photonics, vision, and precision motion components and sub-systems to original equipment manufacturers in the medical and industrial markets worldwide.

This company operating under the laws of New Brunswick, Canada has a Zacks Rank #2. The company has expected earnings growth of 24.4% for the current year, higher than the industry’s 20.3% projected growth.The Zacks Consensus Estimate for the current year has improved 3.6% over the last 30 days.

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