This Canada Pick Keeps on Flowing

10/25/2011 11:30 am EST


Roger Conrad

Chief Analyst/Managing Partner, Capitalist Times

Canada’s fortunes are less tied to those of the US than they’ve ever been, says Roger Conrad of Canadian Edge, who shares a play from one of these sectors showing growth at an unexpected time in this exclusive interview with

Roger, you write a newsletter about Canadian stocks. You’re pretty familiar with what’s going on here. Canada has done fairly well in comparison with the United States so far, coming out of the financial crisis and recession, but they’re even talking about a little extra stimulus here, aren’t they?

Yes, it’s interesting, isn’t it? I think all around the world, governments are dealing with the fact that unemployment has remained fairly high.

I mean this is deflationary…we experienced a very serious deflationary event in 2008 with the credit crunch and the collapse of the US housing market, which is an asset on which a lot of the world had built reserves, and so forth, and a lot of people thought it could never go down.

So when it did, there was tremendous fallout, and really since the Depression we haven’t seen anything like that. It’s going to take a while to recover.

I think Canada has done well because of one main reason, and that is—and it’s a huge difference with that happened in the 1930s—and that is the recovery in commodity prices. You didn’t really see a recovery in commodity prices in the Depression until 1935, so that was about six years in. This time around though they bottomed actually before the market did, in early 2009. Very big difference.

It’s helped Canada a lot. One reason is the huge demand in Asia for energy. That’s something we’ve never seen before. It’s something people didn’t really fully appreciate, I think, in 2008, and I think it’s something that they are increasingly coming to appreciate.

We’re seeing that in the relative strength of the Canadian dollar, which really got shellacked in 2008, but held above parity with the US dollar until recently. That’s one thing we Americans are finding as we change money here.

Well, unemployment here is about 7.5%, versus 9.1% in the US? You’ve had fewer job losses, but you do have an economy that is still pretty export-dependent on the United States…so when America catches a cold, Canada gets sick as well, right?

Well, not so much as in the past, but I think that’s definitely true of sectors of the economy. That’s one thing that the Canadian government has to keep in mind, particularly this Conservative Party government, which has traditionally been a Western province government more tied in with the natural-resources industry and so forth.

Now, they have become a national party. They have the majority in Parliament for the first time in a very long time, and so they have to pay attention to the constituencies, particularly in the east, where you have a lot of industrial trade with the US.

That’s one reason why the Canadian dollar hasn’t really gone to the moon against the US. The government here is definitely concerned with keeping it under wraps, and thereby helping some of these companies that are hurt when the US dollar depreciates and that depend on US dollar revenue.

And the Canadian Central Bank, the Bank of Canada, recently just said that they are going to keep rates at 1% for an extended period of time, essentially following the policy of the Federal Reserve.

Pretty much. And you know, I think Canada could actually maybe tighten their policy if they wanted to a little bit more. They have that luxury…but because they are not as leveraged as we are, their banking system is infinitely stronger.

We saw that in their fiscal third-quarter earnings—strong reserves, strong loan growth, drops in loan losses, very strong domestic businesses in Canada. Some of them are doing well in the United States as well.

Those conservative policies they had in place during the crash have really helped them as we have gone forward. So, there are definitely some major reasons why they have fared better than we have.

Can you give us very quickly one stock or ETF that people should look at for Americans who want to invest in Canada?

Well, I’m very bullish on the energy industry in Canada and I think that’s where we’re going to see a lot of growth coming from. I think investors can look at a company called Pembina Pipeline (Toronto: PPL). It is one that has been very, very reliable over time.

People have worried about another recession and so forth. They depend on revenue from very strong companies…via long-term contracts they operate pipelines and other energy infrastructure. A very, very steady business, and it’s tied into the growth of the oil sands as well as other areas in Canada—the shale explosion and so forth.

Every time they build a project they get more cash flow, which again benefits the share price.

Now, do you own this stock either personally or professionally?

We own this professionally, and it’s a staple of the model portfolios in my newsletters.

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