A lot of U.S. investment columnists seem to fixate on Canada as the land of cannabis stocks and cannabis as the engine of the Canadian stock market. In their world, the only thing in Toronto worth discussing is how the notoriously volatile cultivators are doing.
Maybe that was true five years ago, but since then stocks like Aurora Cannabis (ACB), Canopy Growth (CGC) and Tilray (TLRY) have cooled off a lot . . . while the Toronto market as a whole has climbed 40%, leaving those once-dynamic companies behind.
So if you’re looking north of the U.S. border for investment ideas, don’t expect to see a whole lot of “green” nowadays. And don’t count on significant cannabis presence in country-specific index funds either.
The biggest cannabis company in the world, CGC, is based in Ontario and traded in Toronto. But it’s only a $2.9 billion stock at this stage, not even 1% of the Canadian market by capitalization.
And smaller names like ACB and TLRY on down the food chain don’t even show up on the $3 trillion Canadian market map. They aren’t exactly titans of industry.
On a national scale, they’re more “buzz” than “bank.” Instead, finance is the real backbone of the Canadian market: Royal Bank of Canada (RBC), Toronto Dominion (TD), Brookfield Asset Management (BAM), the Bank of Nova Scotia (BNS) and the Bank of Montreal (BMO), CIBC (CM) and so on.
Add them all together, they’re about 37% of the Canadian market. When you buy Canadian stocks, you’re probably buying the financials first, with a slice of other sectors and an infinitesimal trace amount of cannabis.
And then there are the finance-adjacent service providers. You know I’m a fan of Shopify (SHOP) at the right price. Thomson Reuters (TRI) is another global brand that every investor should know even if you find the stock a little boring. Like the banks, it pays dividends.
More to the point, there’s 17 times as much money flowing through TRI than there is in CGC. SHOP is even bigger by comparison. Any of the big Canadian banks could realistically buy out the entire cultivator group without appreciably stretching its credit lines.
Don’t be fooled. If there’s a commodity that rules the Canadian market, it’s oil. Energy weighs in at 17% of the capital traded in Toronto.
Not coincidentally, these are the most interesting stocks up there right now. Enbridge (ENB) owns the pipes and pays close to 6% a year in dividends. As the oil sands heat up again, those pipelines are going to fill up fast.
Likewise, TC Energy (TRP) is going places in a world where Russian oil gets pushed to the global margins. It pays a big dividend too. My suggestion: own both stocks and you’re covered either way.
Canadian Natural Resources (CNQ), Suncor (SU) and others produce the actual oil that fills the pipes. Hard to go wrong there right now, either.
This is the real “gold rush” in Toronto right now. But don’t rule out the traditional and non-traditional miners either. Nutrien (NTR) should be on your screen if you’ve been worrying about high fertilizer prices . . . it’s the biggest potash producer and third-biggest name in nitrogen on the planet, overshadowing everything in the Russian sphere of influence.
I loved this business back when it was two separate companies, PotashCorp and Agrium. They realized it was in their interest to team up when fertilizer prices were depressed. Now they’re in the catbird seat.
And then there’s old-fashioned gold. Barrick (ABX) is one of the biggest producers around, feeding into what we used to call the Central Fund of Canada (CEF), the go-to instrument for U.S. investors who wanted to hold physical gold without the headache of actually taking delivery of the bullion.
CEF is still around under new ownership but the basic proposition remains intact. If you want gold, Canada has a lot of it. And in today’s global economy, “green” gold is getting cheaper all the time. The hard stuff remains in demand.