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 and investment, and many Canadian stocks have considerable exposure to the U.S. economy.

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And while Canada’s GDP growth (1.6% in the second quarter; third-quarter data isn’t out yet) trails U.S. GDP growth (1.9% in the third quarter) by a small margin, it wasn’t long ago that Canada’s economy was growing faster than America’s. Many Canadian companies are benefitting from that growth, and while the Canadian market as a whole has lagged, investment opportunities abound north of the border.

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: $36 billion
One-year return: 43.6%

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 been on a tear for the last three months, and earnings are expected to grow double digits in 2020.

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: $31 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 is coming off its best year for sales growth since 2012 and best year for profit growth since 2011. As a result, the stock has been rising for the better part of a year.

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

Market cap: $49 billion
YTD return: 203%

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 around 420, 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. Like CP and LULU, it’s just a Canadian blue-chip stock with a good long-term chart.

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