Canadian stocks will be getting a boost on the news that Joe Biden is the United States’ President-elect. U.S.-Canada relations have been strained during Trump’s term as U.S. President. That much is clear. The U.S. and Canada share a long border, many cultural values and many of the same views in general. Yet, it would be fair to say that our differences have come to the fore of late.
That trend should undergo a reversal, and relations should be on the mend in 2021. That should lead to a macro environment in which American investors, and all investors, look to our northern neighbors and their businesses more favorably. Cooperation will increase, foreign direct investment may rise, and more interest will abound.
The overall thrust is that there will be increased opportunity and logic behind giving Canadian stocks more scrutiny now and into 2021. There is a very good business case for these stocks to appreciate on the whole. These seven stocks listed below are not only attractive on improved international relations, but also fundamentally attractive in their own right. Read on because the case for northern diversification is strengthening.
- Lululemon (NASDAQ:LULU)
- Brookfield Infrastructure Partners (NYSE:BIP)
- Shopify (NYSE:SHOP)
- TFI International (NYSE:TFII)
- Magna International (NYSE:MGA)
- Telus Communications (NYSE:TU)
- Thomson Reuters (NYSE:TRI)
Canadian Stocks: Lululemon (LULU)
Lululemon is a Vancouver-based athletic apparel company that has become a household name in the past few years. Admittedly it is more agnostic than some other names on this list in terms of its connection to improved international relations. Nevertheless, it is a strong Canadian company and should rise.
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Investors could make the case that Lululemon is due for a downward price correction given that its valuation rankings are quite low. Traditional valuation ratios including price-to-earnings, price-to-sales and price-to-book ratios are all in the bottom 10-15% relative to industry peers. However, the same is true of Tesla (NASDAQ:TSLA) and many other growth stocks, and the markets have yet to correct them downward overall.
Markets are overall positive on Lululemon, having it rated overweight and basically 2-to-1 a buy over a hold. The thirty analyst average price in 12 months is nearly $373, leaving a bit of growth from current prices. And a bullish case could see it rise much higher.
Global activewear is predicted to have a CAGR of 11% 2020-2024. Lululemon is positioned to take advantage of that trend. Improved relations may mean room for improvement even though international relations may only modestly move this particular stock.
Brookfield Infrastructure Partners (BIP)
Brookfield Infrastructure Partners has significant operations in Bermuda and headquarters in Toronto. The company invests in diverse infrastructure assets globally, the majority of which is in North America. The company has $379 billion of AUM (Assets Under Management) in North America, $102 billion in EMEA, $36 billion in South America and $61 billion in the Asia Pacific region.
Given that a central pillar of President-elect Biden’s policy will be to invest in infrastructure, BIP stock has excellent tailwinds. And BIP has the majority of its assets in North America meaning improved U.S.-Canada relations bode well for the company specifically.
The company has $91 billion earmarked for infrastructure, specifically. It invests in every type of infrastructure from utilities, to transportation, to data, all of which should soon get a boost. The company is modestly undervalued now, but has analyst favor. This could mean a serious bump if Biden’s plans for an infrastructure build out take root.
Shopify recently posted a strong Q3 where actual earnings per share of $1.17 more than doubled consensus expectations of 54 cents. And despite the fact that the company also posted revenues that rose 96% over the same period a year earlier, its shares slipped.
The prevailing explanation is that while adoption of cloud-based ecommerce is likely to remain strong, the novel coronavirus is causing woes related to employment and entrepreneurship which drive SHOP stock. I am an optimist at heart, and I believe that Shopify has a bullish case underpinning it despite the current times we are living in. Because, while analysts are decidedly undecided on SHOP shares, I’m not.
Wall Street has it evenly split between buy and hold. Clearly ecommerce is here to stay. However, I also think that employment woes will be less pronounced on the positive vaccine news currently coming out of Pfizer (NYSE:PFE), Moderna (NASDAQ:MRNA) and AstraZeneca (NASDAQ:AZN), among others.
We do have a light at the end of a long tunnel. Although vaccine distribution will take time, it will happen. That will bring people back to work bolstering the American economy. As a consequence, more SMEs will migrate their shops to SHOP increasing share prices.
TFI International (TFII)
TFI International is a transportation and logistics company located in Quebec. The company operates throughout Canada, the U.S. and Mexico and employs over 17,000 people. Generally speaking, improved relations between the U.S. and Canada should equate to a greater flow of goods cross-border. In turn, TFII stock should capitalize.
The company has expanded significantly over the past decade via a series of acquisitions across North America. TFI has undertaken 88 acquisitions in Canada, the U.S. and Mexico since 2008. The company currently has a return on invested capital that is lower than the weighted average cost of that capital. This is not what investors want to see. However, a bullish theory could be made that those 88 acquisitions will begin to pay dividends so to speak, thus increasing the TFI’s capital efficiency and currently unfavorable ROIC to WACC ratio.
Prime Minister Trudeau, when asked what his biggest cross-border concern is, answered “Trade … [c]ontinuing access to the American market, making sure we’re defending Canadian jobs, defending Canadian workers and ensuring a smooth flow of goods across the border.”
The Biden-Trudeau relationship is strong, which should pave the way forward for TFII stock.
Magna International (MGA)
Magna is an automotive industry supplier providing body structures, seating, power & vision and complete vehicle engineering and manufacturing. I became aware of the company after it was announced that it will provide platform manufacturing for the Fisker (NYSE:FSR) Ocean EV. But the fact is that a cursory glance at the company’s partners shows it serves close to a hundred customers across the automotive industry. Almost all of them are well-known, household names.
Whether Fisker becomes a success or not is up for debate. However, more importantly to Magna is the opportunity to expand EV operations. The company will have an opportunity to not only prove itself with Fisker, but also a chance to gain market share in an EV environment fostered under President-elect Biden.
Biden is a car guy, and one who sees the evolution of the industry clearly tipping toward EVs. He is very likely to incentivize the industry at large, with plans to modernize government fleets, specifically. Magna will have an excellent chance to capitalize in an environment in which cross-border investment and cooperation are increasing.
Telus Communications (TU)
Telus Communications is one of the telecommunications which was central in the Huawei narrative. Remember, Canada did arrest Meng Wanzhou, Huawei’s CFO and daughter of the founder. The court case is ongoing now. This further strained tense international relations between China, Canada and the U.S.
Biden is likely to take a softer approach toward China, which should open Huawei’s opportunity to a degree with Telus. Huawei was a 4G provider for Telus, but was effectively shut out of 5G contracts in Canada.
This is because Canada has yet to give an official decision regarding whether to ban Huawei or not. In my mind this means that Telus and Huawei could begin negotiations again. Biden is likely to pressure China less than President Trump. Trudeau has been indecisive in banning Huawei and will receive less pressure under a Biden White House. There is a chance that Trudeau simply waits for a Biden inauguration and does not ban Huawei at all.
The conclusion is that Telus may have a chance to reestablish its relationship with Huawei and other Chinese telecoms as a consequence. Telus is already well-regarded by analysts and it could rise if it can find ways to save consumers money. The Canadian government believes current phone bills are excessive. If Huawei can prove that it can decrease operating costs, Canada may be much more willing to bend toward its will. If that happens, TU stock will be primed to rise.
Thomson Reuters (TRI)
Thomson Reuters has a great chance to rise and become a buy on improved international relations. It is my hope, but certainly not a foregone conclusion, that people will consume more neutral media sources under the new Presidency. Reuters news is regarded as being close unbiased and reliable.
Fact-based news should help to improve international relations, which is what Reuters aims for. The company’s recent Q3 earnings release provided some positive takeaway, which bolsters its case as a stock to buy. Highlighted in the report was that “Adjusted EBITDA, which excludes the impact of the warrant revaluation among other items, increased 42%, primarily reflecting lower costs and higher revenues. The related margin increased to 34.0% from 24.4% in the prior-year period.”
Further, “Adjusted EPS, which excludes the company’s 45% equity interest in Refinitiv as well as other adjustments, increased to $0.39 per share from $0.27 per share in the prior-year period, primarily due to higher adjusted EBITDA.”
Therefore, the bull thesis around TRI stock is that already improved international relations can be furthered by neutral media sources like Thomson Reuters.