11 Best Canadian Stocks to Buy Now

Ma’k Almario
·11 min read

In this article, we present the 11 best Canadian stocks to buy now. If you’re in a hurry, you can skip and click to read the 5 best Canadian stocks to buy now.

Canada is known to be the second-largest country in the world with a landmass of 9.1 million square meters. The country is considered an “energy superpower” with abundant natural resources and a small population of 37 million inhabitants relative to its land area. According to Statista, In 2019, the real GDP of Canada was around 1.64 trillion Canadian dollars. In an article published by CBC News, in February 2020, the economy was producing just over $2 trillion at a seasonally adjusted annual rate.

Most countries were greatly affected by the impact of the COVID-19 pandemic, and Canada was not resistant to the economic downfall. According to the Canadian Federation of Independent Business (CFIB), one in six, or about 181,000 Canadian small business owners are now seriously contemplating shutting down. In addition, more than 2.4 million people could be out of work. Simon Gaudreault, CFIB's senior director of national research said,

"We are not headed in the right direction, and each week that passes without improvement on the business front pushes more owners to make that final decision. The more businesses that disappear, the more jobs we will lose, and the harder it will be for the economy to recover."

Best Canadian Stocks To Buy Now
Best Canadian Stocks To Buy Now

Despite the threats the pandemic has introduced, Canada has continuously made an effort to get back on track. In a report by The Star Business Columnist, In May, Canada created 290,000 new jobs, one of the strongest one-month job gains on record. And by June, the number of Canadians receiving the $500 weekly payment from the Canada Emergency Response Benefit (CERB) had already dropped by 1.2 million from a peak of 8 million. According to a report by Statistics Canada, In April 2020, international investors bought $54 billion worth of Canadian federal and corporate debt.

The year 2020 was a challenging year for Canada. But the year 2021, will be the year Canada thrives. In a recent poll of economists conducted by Reuters, the consensus estimate for 2021 GDP growth was 4.4%. The unemployment rate was expected to slowly settle to 7% and 6.2% by end-2021 and end-2022 respectively. According to BMO Capital Markets, as the pandemic eases, the Canadian economy is poised for its strongest growth in 20 years. BMO said in its report,

“The best thing about the past year is that it’s over, and the year ahead could be one of the best since the start of the century. More fiscal juice should push the economy over the second-wave hump, while the vaccine rollout will speed up the recovery, though labour markets will take much longer to heal. Although some hard-hit services industries will struggle until most of the population is inoculated (likely in the summer), the goods-producing sector will continue to expand. Recent double-digit gains in house prices and record equity markets will support household wealth and spending.”

In a report by Statistics Canada, after 1Q 2020, Canadians saved an average of 7.6% disposable income, up from 2.3% in the 1Q 2019. Ian Lee, an associate professor at Carleton University's Sprott School of Business, told CTV News Channel that this will pent-up demand express in 2021.

"I think we're going to see a very significant increase in spending because people are going to be so grateful and so happy it's behind us. We can get out of our houses, go to restaurants, go out flying and travelling and so forth. So I think we'll see that pent-up demand express itself in 2021."

In order to identify the 11 best Canadian stocks to buy now, we started with the holdings from iShares' MSCI Canada ETF (EWC) and we were able to narrow down our list to 11 stocks by using our hedge fund sentiment scores.

Our in-house analysis shows that we can use the sentiment information gathered from the hedge fund filings to classify in advance a select group of stocks that can beat the S&P 500 index by double digits annually on average. For instance, the portfolio of our monthly newsletter’s stock picks has beaten the market by over 88 percentage points since March 2017 (see details here) Some of the portfolio holdings of our monthly newsletter have been shared publicly too. In October, we shared this real estate stock idea and since then, it’s been more than 50 percent.

We now present to you the 11 best Canadian stocks to buy now based on the stock picks of 800+ hedge funds tracked by Insider Monkey:

11. Cameco Corp. (NYSE:CCJ)

No of HFs: 30

Total Value of HF Holdings: $121 Million

We start the list of best Canadian stocks to buy now with CCJ. The company is known as the world’s largest uranium producer. They were mentioned in an article, Uranium Bulls: The Queue Starts Here. In December 2020, the company temporarily suspended production on its Cigar Lake uranium mine in northern Saskatchewan due to the increasing risks posed by COVID-19. However, Cameco President and CEO Time Gitzel said that they will be able to meet commitments by increasing their purchase.

“Due to the suspension, we plan to increase our purchases in the market to secure uranium we need to meet our sales commitments. COVID-19 has taught us many lessons, including that the pandemic is a greater risk to uranium supply than to uranium demand.”

10. Canadian Natural Resources, LTD. (NYSE:CNQ)

No of HFs: 30

Total Value of HF Holdings: $233 Million

CNQ is known to be one of the largest producers of independent crude oil and natural gas. The top hedge fund holder of this stock is Ken Griffin’s Citadel Investment Group which had more than $33 million invested in the stock at the end of September. During the third quarter of 2020, CNQ reported net earnings of $408 million.

9. Franco Nevada Corp. (NYSE:FNV)

No of HFs: 31

Total Value of HF Holdings: $1.51 Billion

The stock was mentioned as one of the 10 Best Gold Stocks to Buy Now According to Billionaire Hedge Fund. In this article we shared Horizon Kinetics' comments on the stock in their Q2 2019 investor letter:

“Franco-Nevada is a Canadian gold-focused royalty and streaming company, although it acquires royalties in other commodities as well, including silver, copper, oil and gas. It does not operate mines itself, but rather, collects royalties from mining companies or purchases future gold production at pre-arranged prices, in exchange for providing investment capital. Those prices represent a discounted present value of future years’ production, established by using an interest rate negotiated between the miner and Franco-Nevada. It can be startling to read that a typical contract might give Franco-Nevada the right to purchase gold at perhaps as low as one-third of current prices. It is clear both from per-ounce prices for new gold and silver contracts announced, as well as from the rate of book value expansion, that these are double-digit rates of interest, perhaps in the 12% to 15% range. The deep discount relative to current pricesis simply a reflection of the power of compounding over, say, a 20-year period or longer and brought forward to the present. Franco-Nevada earns that discount over time and is a consistent generator of return of equity (ROE).

This business model is unusually attractive. Royalty companies are among the highest-margin businesses of scale that exist, in that there is very little operating expense. General & Administrative expenses are only a few percent of revenue, and the contracts produce copious amounts of free cash flow, which are reinvested in additional royalty contracts or paid out as dividends – the company has increased its dividend every year since its initial public offering in 2007. The business model also requires little debt, thereby minimizing the financial risk. Since its inception, the shares have produced a total compound return of approximately 16% per annum even as gold prices have languished and gold mining companies have declined. Moreover, the company outperformed the S&P 500 by roughly a 4:1 margin during that time. This occurred despite a weak pricing environment for gold and silver.

The company is the beneficiary when its investees increase production, as well as when gold prices rise. However, it is not directly impacted by cost inflation, as the expenses are borne by the operators, not directly by Franco-Nevada. Similarly, the company is not encumbered with risks that are normally faced by mining companies, such as increased personnel costs, exploration and development expense, and mine reclamation or remediation. The latter is important, as these costs are difficult to predict and can be quite costly in severe cases.

In the past 10 years, the annual volume of gold-equivalent ounces the company has sold under royalty agreements has increased from 110.3 million ounces to 497.7 million ounces, or almost fivefold. Yet, of the 376 royalty properties that comprise its asset portfolio, only 107 are producing. The remaining properties may be thought of as a dormant asset. As such, there is an enormous amount of upside potential when these properties start production…”

8. Canadian Pacific Railway, LTD (NYSE:CP)

No of HFs: 32

Total Value of HF Holdings: $1.46 Billion

The eight best Canadian stock to buy now is CP. The company offers transportation services and supply chain expertise with access to eight major ports and key markets across North America. The company recently reached a new five-year agreement with the International Brotherhood of Electrical Workers Canadian Signals and Communications System Council No. 11m a union that represents 360 signal maintainers at the railway in Canada.

7. Restaurants Brands International, Inc. (NYSE:QSR)

No of HFs: 33

Total Value of HF Holdings: $2.74 Billion

QSR was mentioned as one of the Top 10 Restaurant Stocks to Buy Now. The top hedge fund holder of this stock is Ross Turner’s Pelham Capital which had $189 million invested in the stock at the end of December. An insider purchased 45,000 shares at around $64 in February 2019. The stock is down 6% since then. In an article, Pershing Square Capital Management mentioned that they believe investors are likely to give credit to QSR’s long-term international growth opportunities and assign a higher valuation to its shares.

“Restaurant Brands’ second quarter results continue to highlight our thesis that its royalty-based franchise model is a uniquely valuable business with significant long-term, global unit-growth opportunities. QSR reported strong overall same-store sales growth led by nearly 4% at Burger King, 3% at Popeyes and almost 1% at Tim Hortons. The strength in same-store sales at Burger King was driven by impressive results in the international business, which will be enhanced by accelerated growth in the U.S. business due to the recent launch of the plant-based Impossible Whopper, and its new partnership with UberEats.

Results at Tim Hortons improved from last quarter, but remain below our long-term expectations. We anticipate that momentum generated by the recently launched loyalty program has provided Tim Hortons with valuable customer insights that will help deliver improved results over time.

QSR grew net units by 5% this quarter, with 6% growth at Burger King and Popeyes, and 2% at Tim Hortons. The company announced a master franchise agreement to open 1,500 new Popeyes restaurants in China over the next decade, new units that would represent 50% of the brand’s current store base. As a result of solid same-store sales and continued unit growth, QSR’s pre-tax operating income before currency effects grew 6%, led by 10% growth at Burger King and mid-single-digit growth at Tim Hortons and Popeyes.

QSR’s shares have appreciated 45% this year, but currently trade at less than 24 times next year’s free cash flow, which represents a discount to both intrinsic value and slower-growth franchised peers. As same-store sales momentum continues to improve, we believe that investors are likely to give credit to QSR’s long-term international growth opportunities and assign a higher valuation to its shares.”

6. Kinross Gold Corporation (NYSE:KGC)

No of HFs: 35

Total Value of HF Holdings: $483 Million

The gold and silver mining company KGC ranks sixth in our best Canadian stocks to buy now. The top hedge fund holder of this stock is Jim Simons’ Renaissance Technologies which had $44.6 billion invested in the stock at the end of September. During the third quarter of 2020, the company reported net earnings of $240.7 million, or $0.19 per share.

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Disclosure: No positions. 11 Best Canadian Stocks To Buy Now is originally published at Insider Monkey.