Summary
- The Canadian Dollar is much weaker than the US Dollar from a year ago.
- As a result, some Canadians may want to invest in Canadian stocks instead of US stocks for now.
- The main strategy of this portfolio is to buy leading companies after some form of pullback.
- 2 Canadian leading Energy companies can be bought with at least 31% and 38% potential gain in 2 to 3 years, not including dividends.
Why I’m Launching the Canadian Buy the Dips Portfolio
With more than $1.14 Canadian Dollar needed to convert to $1 U.S. Dollar (not to talk about added conversion fees), do-it-yourself Canadian investors may want to stay in their domestic currency and invest in Canadian companies instead of US ones. A reader asked me how to build a Canadian stock portfolio that is conservative and have the goal of income and steady growth. One strategy is to buy companies in a specific sector which has pulled back. A classic of buying low and possibly selling high. I say “possibly” because it might be wiser to buy low and sell high in certain sectors or companies more than others.
To remain conservative though, let’s first identify leaders in their respective sectors and industries. One way of doing this is finding the companies with the largest market capitalization in a particular sector. They are able to grow big (relative to their peers) because they are doing something right. These companies generally have more solid balance sheets and pay a growing dividend.
A Couple of Canadian Leaders in the Energy Sector
A stock portfolio can only be built one company at a time. The Energy companies have pulled back with the oil price decline. This fits the pull back criterion. Let’s take a look at some of the Canadian leaders in the Energy sector. They are Suncor Energy Inc. (TSX:SU)(NYSE:SU), and Canadian Natural Resources Ltd (TSX:CNQ)(NYSE:SU). They are the companies with the largest market capitalization in their respective industries.
| Industry |
Leaders |
*Market Cap |
S&P Credit Rating |
*Yield |
| Integrated Oil and Gas |
Suncor Energy |
52.4B |
A- |
3.1% |
| Oil and Gas E&P |
Canadian Natural Resources |
41.4B |
BBB+ |
2.4% |
* As of the close of Nov 28, 2014 on the TSX
Introducing Suncor Energy
Suncor Energy is Canada’s largest integrated energy company, having a balanced portfolio of high quality assets. Its oil sands business is located in Alberta, Canada having 6.9B barrels of reserves and 23.5B barrels of contingent resources. Suncor estimates to have a compounded annual growth rate of 10 to 12% in oil sands and 7 to 8% overall until 2020. Suncor has been publicly traded since 1992. Since its high of $46 in June 2014, Suncor Energy has dropped to $36, a 21.7% decline.
SU data by YCharts
Even as the oil price dropped like a rock in the financial crisis, Suncor maintained its dividend. In fact, since 2011, it has increased it from $0.10 per share to its current $0.28 per share, a 180% increase. Its current yield is sitting around 3.1%, which is higher than the index’s (TSX:XIU) 2.34%.
Currently, this industry leader can be bought around $36. Rated 4-star by Morningstar, it is undervalued with a fair value estimate of $50, which is a potential 38% gain. Read More