Falling Canadian Dollar Boosts Appeal of Canadian Stocks
NEW YORK (TheStreet) -- Recent reports show the American economy recovering, but Canada is not doing as well. Because Canada's economy is dependent on natural resources, it has suffered as prices of many commodities have failed to recover from the Great Recession.
That said, for investors with a long-term outlook, there are compelling reasons to consider Canadian stocks .
The most important is that there are a number of excellent publicly traded companies in Canada.
Prem Watsa, who is known as "The Warren Buffett of Canada," has many of these companies in the portfolio of Fairfax Financial Holdings (Toronto) (Pink Sheets) , the investment firm he heads. Like Buffett, he is a value investor who takes long-term positions. So devoted is Watsa to this investment style that he named his son after Ben Graham, the intellectual force behind value investing.
To the delight of the shareholders, Fairfax Financial is up more than 30% for the first three quarters of 2013, according to a Bloomberg report published by Ottawa Citizen. Over the past 20 years it has posted Buffett-type returns with an average rate of 13%, the report said. At present, Fairfax Financial has positions in Canadian firms such as Resolute Forest Products
Many Canadian stocks are also solid enough to pay above-average dividends.
The average dividend for a member of the S&P 500 is around 1.9%. BCE, a telecommunications firm, has a dividend of more than 5%. The Bank of Montreal
The next factor that should lead investors "north of the border" is that the "loonie," or Canadian dollar, is at a three-year low. A Goldman Sachs (GS) report predicts that it will fall even more in 2014, according to CBC News. That makes every asset priced in Canadian dollars that much cheaper to foreign investors. As Canada is very hospitable to buyers from abroad, assets should rise in value over the long term to outsiders taking advantage of the discount.