Canadian Stocks are a Good Hedge Against U.S. Turmoil. And Your Best Bets are the Biggest Companies.

One of the generally accepted wisdoms over the past couple of years has been that the U.S. stock market is where the action is. But relative performance of ex-U.S. markets is showing that’s no longer the case. There are market-beating returns available to those investors willing to step abroad. And one of the easiest steps to take is just over the border with our neighbor to the north, Canada. For the modestly adventurous investor, I think there are quite a few Canadian blue-chip stocks worth a look right now.

Buying Canadian stocks, particularly well-known Canadian blue-chip stocks, is a relatively easy pitch to U.S. investors, in my view, especially to those that live within a day’s drive of the border. It’s a stable, developed economy and an established trading partner (for the moment). While there are certainly a lot of differences between the U.S. and Canada, the country is friendly both for travel (under normal, non-pandemic circumstances) and investment, and many Canadian stocks have considerable exposure to the U.S. economy.

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Best of all? Canada has done a much better job than America at limiting Covid-19’s wrath. As of this writing, it has just 6,384 active coronavirus cases, and 3,118 cases per million. The U.S. has 2.28 million active Covid cases, and 14,586 per million. With far fewer Covid cases, the damage to Canada’s economy has been comparatively minimal; its GDP declined just 0.9% in the first quarter (second-quarter results aren’t out yet), vs. a 5% decline in U.S. GDP in the first quarter. Hence, even as U.S. stocks continue their unlikely rally, there’s less risk investing in Canada these days.

With that in mind, here are three Canadian blue-chip stocks that look particularly good right now:

3 Canadian Blue-Chip Stocks

Canadian Blue-Chip Stock #1: Canadian Pacific Railway (CP)

Market cap: $37 billion
One-year return: 17.1%

Transportation was a key focus of the new, NAFTA-replacing trade agreement – namely Canadian and Mexican automakers, which were granted exemptions from future tariffs on up to 2.6 million vehicles exported to the U.S. It didn’t say anything about railroad companies, which is what Canadian Pacific Railway is (as you might have guessed). And perhaps no news is good news: CP shares have recovered quite well from the February and March global market crash, rising 50% from their late-March bottom; and the dent in the company’s sales hasn’t been too damaging, with revenues expected to be flat this year and up 6.6% next year.

CP may not be benefiting from the new trade agreement. But it’s a strong stock that has been on a very strong run of late.

Canadian Blue-Chip Stock #2: Lululemon Athletica (LULU)

Market cap: $44 billion
One-year return: 83.4%

We don’t think of Lululemon as a Canadian company. But it was founded in Vancouver in 1998, and it’s still based there. The athletic apparel company best known for its yoga wear was coming off its best year for sales growth since 2012 and best year for profit growth since 2011. Then the pandemic hit, taking a bite out of both top and bottom line. But with analysts expecting much bigger things in the quarters ahead, LULU stock hasn’t slowed one bit since the crash. In fact, it’s building a nice-looking base.

Canadian Blue-Chip Stock #3: Shopify (SHOP)

Market cap: $129 billion
One-year return: 226%

SHOP was the top pick of 2017 by our growth investing expert Mike Cintolo. And the stock showed remarkable resilience in 2018 (+37%) after getting dinged by short-selling research firm Citron, which called the Canadian stock a “get rich quick scheme,” and put a price target of 60 on it (50% below its share price at the time). Instead, shares of Shopify currently trade right at 1,035 (!), and its e-commerce platform continues to attract thousands of small- and mid-sized businesses in Canada, the U.S. and elsewhere. Along with PayPal (PYPL) and Square (SQ), Shopify helps smaller players take advantage of selling online. And the company has multiple avenues of growth: subscription revenue for using the product, a cut of gross merchandise sales from its customers and some newer capital offerings like cash advances.

Because it’s all online, Shopify isn’t dependent on improved synergies between the U.S. and Canada – and more importantly, it’s Covid-resistant. Sales are expected to improve 62% in the current (2021) fiscal year, and the company just blew earnings estimates out of the water in its most recent quarter, with sales coming in at $714 million, light years ahead of the $513 million in revenues analysts were expecting. As a result, investors continue to pour into SHOP stock.

That post-earnings bounce the last couple weeks has pushed Shopify past struggling Royal Bank of Canada (RY) as the largest Canadian company by market cap. Buy on dips. But right now, there’s no better Canadian blue-chip stock to own than SHOP.

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*This post has been updated from an original version published in 2017.